As the president spoke, the United States, anxious to secure quick approval for any future action against Iraq, gave the other four key Security Council members a new draft of its resolution but no decisions were made.

France, which was leading resistance to the original US draft, decided not to introduce its own resolution as it had threatened but to negotiate using the US text, diplomats said after a meeting among the five nations.

"We've tried diplomacy. We're trying it one more time. I believe the free world, if we make up our mind to, can disarm this man peacefully, but if not we have the will and the desire as do other nations to disarm Saddam," Bush told reporters.

"The stated policy of our government, the previous administration and this administration, is regime change, because we don't believe he is going to change," Bush said after talks with NATO Secretary General George Robertson.

"However, if he were to meet all the conditions of the United Nations, the conditions that I've described very clearly in terms that everybody can understand, that in itself will signal the regime has changed."

Bush's comments gave the strongest indication yet the United States could possibly accept Saddam's remaining in power if he met U.N. disarmament demands, despite standing US policy in favor of a "regime change" in Iraq. A White House spokesman said Bush had not changed his position.

World oil prices tumbled by four percent as traders who believed a military strike against Baghdad was imminent bailed out. After the draft resolution was distributed, NYMEX November crude oil futures ended $1.23 lower at $28.37 per barrel.

In Iraq, for the first time in Saddam's 23-year rule, jails were almost empty on Monday after thousands of inmates were freed. Saddam ordered the release of political prisoners and most criminal inmates in an unprecedented amnesty which analysts saw as a bid to rally Iraqis behind his leadership.

LEGAL COVER TO ATTACK IRAQ

The latest US proposals drop explicit authorization to use force against Iraq and delete a proposal for inspectors of the five permanent council members with veto power -- the United States, Britain, France, Russia and China -- to accompany the U.N. arms inspectors, envoys said.

But they still provide some legal cover to attack Baghdad by containing a warning of serious consequences if Iraq obstructs inspections and citing its "material breach" of past U.N. resolutions, according to excerpts obtained by Reuters.

"We will have zero tolerance for any violations of a U.N. resolution," White House spokesman Ari Fleischer said.

The new US proposals gave hope for a breakthrough after a month-long deadlock among the council's permanent members.

"But it's still to early to tell," said one participant in the meeting. French diplomats were awaiting instructions from Paris before the five powers meet again on Tuesday, spokeswoman Ginette de Matha said.

Iraq pledged to give up any chemical, biological or nuclear arms after the 1991 Gulf War triggered by its invasion of neighboring Kuwait. U.N. weapons inspectors had been assigned the task of finding any such weapons, but left in 1998 ahead of a US-British bombing raid of Iraq, and have not returned.

Although US officials stress Washington could strike Iraq at any time in self-defense and without U.N. approval, even close ally Britain would have second thoughts about joining military action without some kind of new United Nations Security Council resolution.

INSPECTIONS TIMETABLE

On the timetable for inspections under a new resolution, Fleischer said there would be a period for Saddam to agree to comply with the resolution and a second period to develop a list of what weapons of mass destruction Iraq possesses.

Any subsequent discoveries of weapons not listed by Saddam would be considered a violation, he said. "If they fail to list, and then any are discovered, Iraq would have again violated a resolution," he said.

The new US draft gives arms inspectors a central role, as demanded by most countries around the world and requests a report from the arms experts before any possible military strike, according to excerpts obtained by Reuters.

Chief U.N. inspector Hans Blix planned to leave for Moscow for talks with senior Russian officials on preparations for inspections. In 1998, Russia bitterly criticized the inspectors, and their then leader, Richard Butler, for not consulting with the Security Council.

On Tuesday and Wednesday, Blix is scheduled to meet Russian Foreign Minister Igor Ivanov and Yuri Fedotov, a senior Foreign Ministry official, Blix's spokesman Ewen Buchanan said.

(China Daily October 22, 2002)