We develop a scheme to generate number squeezing in a Bose-Einstein condensate by utilizing interference between two hyperfine levels and nonlinear atomic interactions. We describe the scheme using a multimode quantum field model and find agreement with a simple analytic model in certain regimes. We demonstrate that the scheme gives strong squeezing for realistic choices of parameters and atomic species. The number squeezing can result in noise well below the quantum limit, even if the initial noise on the system is classical and much greater than that of a poisson distribution.
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