Iraq agreed today to U.N. demands that it relinquish Kuwait but said the withdrawal should be linked to a pullout of allied forces from the region and an Israeli pullout from the occupied territories.
The announcement, 30 days into a U.S.-led war to force a pullout, came in a communique from Iraq's ruling Revolutionary Command Council, which is headed by Saddam Hussein.
"In order to achieve a dignified and acceptable political settlement, the Revolutionary Command Council has decided to accept U.N. Security Council resolution 660 of 1990, including the clause related to Iraqi withdrawal," the communique said.
The statement, also released by the official Iraqi News Agency, said the council's willingness "should be regarded as a guarantee from Iraq and coupled with an immediate and comprehensive cessation of all land, air and sea military operations."
In Washington, U.S. officials said today Baghdad's announcement will not be enough to stop the Persian Gulf war.
"The campaign goes on. We're not going to change anything on the strength of a radio announcement," said a senior military official, speaking on condition of anonymity.
A Pentagon official, who spoke on condition of the anonymity, said: "We have to wait and see. My reaction is more of relief than surprise."
However, earlier attempts to link a pullout from Kuwait with other disputes have been rejected by the United States and other members of the United Nations coalition.
In Riyadh, Saudi Arabia, U.S. military headquarters said it had no immediate reports of Iraqi troops withdrawing from Kuwait.
In Cairo, Egypt, a senior Kuwaiti official today welcomed Iraq's announcement but said the linkage to other Middle East disputes was unacceptable.
"It is a good statement by Iraq, but it carries many conditions. Iraq must unconditionally implement all United Nations resolutions," a senior Kuwaiti official told Reuters minutes after Iraq said it was ready to pull out of Kuwait.
In Baghdad, Iraqis fired guns into the air after the announcement on Baghdad radio.
The report had an immediate impact on world financial markets.
In London, crude oil prices plunged more than $2 a barrel while the dollar rallied to the day's highs in confused European trading.
North Sea Brent Blend, the international oil benchmark, dropped to $16.30 a barrel from an earlier level of about $18.35 immediately after the report broke.
Meanwhile, gold fell sharply to $362.25 an ounce, down $4.55 from an opening of $366.80. It was unclear whether the announcement would meet U.S. demands to end the war, which began Jan. 17. Washington has said Iraq must pull out of Kuwait, conquered last Aug. 2, before it will call a cease-fire.
Iraq again linked a withdrawal to a Middle East settlement, rejected by Washington and its allies.
"The Revolution Command Council indicated that the first step requested from the Iraqi side regarding withdrawal [from Kuwait] should also be linked to Israel's withdrawal from Palestine and the Arab territories it is occupying . . . ," the statement said.
If Israel failed to withdraw, the United Nations should take the same measures against the Jewish state as it took against Iraq, the statement added.
The announcement came amid signs that the U.S. and its allies were making last-minute preparations for a ground war after bombing Iraq and occupied Kuwait for more than four weeks.
Allied forces are clearing the way for a ground assault on Kuwait with increased attacks on mine fields, tanks and artillery, U.S. officials say.
Punishing air strikes against dug-in Iraqi troops and armor continued without letup today.
Also, an American official said today that bombs of the fuel air explosive type were being used to clear paths through mine fields in Kuwait. The fuel air devices spew an explosive mist over a large area before being ignited. The incinerating explosion has been compared to a miniature nuclear blast.
Another new weapon on hand is the 15,000-pound "daisy cutter" bomb. Dropped from C-130s, it will be used to clear minefields, said U.S. officers in Riyadh, who spoke on condition of anonymity.
Allied officials in the Saudi capital also said that attacks have greatly diminished the strength of Iraq's tank forces. American and British officers have estimated that between 30 and 45 percent of Iraq's tanks are destroyed or inoperable. Officials have said allied forces will be ready to attack when half of Baghdad's tanks are knocked out.
Marlin Fitzwater, the White House spokesman, yesterday fueled speculation that a ground war may be closer than expected when he said an attack could begin "at any time."
But, because the White House is anxious to avoid any public discussion about the timing of a ground offensive, a senior administration official, speaking on condition of anonymity, later told reporters the ground war would not begin in the next few days.
In Riyadh, Gen. Sir Peter de la Billiere, Britain's military commander in the Persian Gulf, said yesterday allied ground troops have had all the training they needed and were ready for battle. He predicted a quick, bloody war.
In Baghdad, low-flying allied aircraft blasted the apparently vacant headquarters of Iraq's ruling Arab Baath Socialist Party today in a predawn attack.
The multistoried party headquarters, in the city center, sustained massive damage, witnesses reported.
British officials also said today that a low-flying Tornado bomber was lost in combat yesterday, the crew of two listed as missing.
Even as the air strikes continued, U.S. officials said they were working on ways to avoid a repeat of Wednesday's Baghdad bunker tragedy. Iraq says more than 400 civilians were killed in the U.S. bombing, which inflamed anti-American passions in the Arab world.