NEW YORK—Attorneys for the WTC Captive Insurance Co. and lawyers representing thousands of Sept. 11, 2001, rescue and recovery workers said they reached a revised settlement agreement that offers as much as $125 million more to workers than the previous proposal.

The revised pact was presented Thursday to U.S. District Judge Alvin Hellerstein, who granted preliminary approval to the deal, describing it as “far superior” to the original agreement.

In March, Judge Hellerstein criticized the previous settlement as inadequate and sent both sides back to renegotiate.

Under the new agreement, about 10,000 plaintiffs, including police officers, firefighters and construction workers, would receive between $625 million and $712.5 million in compensation, up from the previous offer of $575 million to $657 million.

To increase the net settlement, the WTC Captive will add an additional $50 million to $55 million in cash to the deal. In addition, plaintiffs’ attorneys reduced their fees from 33% to 25% of the settlement amount, adding more than $50 million to the pot available to compensate victims, lawyers said.

On Thursday, the judge said the new agreement satisfied many of his previous concerns. “This is a good deal. I am very excited about this deal,” he said.

The workers will be paid based on the severity of their injury as determined by a formula laid out in the settlement. In addition, plaintiffs who develop certain blood and respiratory cancers will be enrolled in a special insurance policy with MetLife Inc. with limits up to $100,000.

Payments will be made by WTC Captive, a federally financed insurance fund established in 2004 with a $1 billion grant to provide otherwise unavailable liability coverage to the city of New York and about 100 contractors.

The settlement provides “fair compensation, certainty now and closure for these plaintiffs who have waited so long,” said Margaret Warner, Washington-based partner with McDermott Will & Emery and attorney for WTC Captive Insurance Co.

At least 95% of the plaintiffs must accept the terms by Sept. 30 for the deal to proceed.

Lawyers and officials said they were “hopeful” the threshold will be met.

The agreement calls for a neutral third party to oversee the valuation of each claim. In addition, Kenneth R. Feinberg, who oversaw the Sept. 11th Victim Compensation Fund, will hear appeals of workers who dispute their claim or injury classification.

In court Thursday, Mr. Feinberg “urged every single claimant to participate” and said he planned to visit fire houses and community centers in the coming weeks to discuss the agreement with claimants.

“This settlement brings an end to one of the final chapters in the” 9/11 tragedy, he said.

A fairness hearing is set for June 23.