Hillary Clinton promises new approach to diplomacy

Reporting from Washington -- Secretary of State-designate Hillary Rodham Clinton on Tuesday promised a new diplomacy that would give America "more partners and fewer adversaries" and signaled her intention to reach out to Iran and continue the uphill struggle for Middle East peace.

At a five-hour Senate confirmation hearing, Sen. Clinton said she and President-elect Barack Obama would overhaul the approach of the Bush administration with a rejuvenated emphasis on diplomatic engagement, alliance-building and development.

Guantanamo Detainee Was Tortured

A Bush administration official responsible for reviewing practices at Guantanamo Bay says the U.S. military tortured a Saudi national who allegedly planned to participate in the Sept. 11, 2001, attacks, the Washington Post reported.

"We tortured [Mohammed al-]Qahtani," Susan J. Crawford told the Post. "His treatment met the legal definition of torture. And that's why I did not refer the case" for prosecution.

Crawford is the first senior Bush administration official who investigates Guantanamo dealings to publicly say a detainee was tortured.

"The techniques they used were all authorized, but the manner in which they applied them was overly aggressive and too persistent. . . . You think of torture, you think of some horrendous physical act done to an individual," she told the Post. "This was not any one particular act; this was just a combination of things that had a medical impact on him, that hurt his health. It was abusive and uncalled for."

Interrogation techniques used on Qahtani included sustained isolation, sleep deprivation, nudity and prolonged exposure to cold. He was hospitalized twice.

Qahtani, allegedly planning to be the plot's 20th hijacker, was interrogated from November 2002 to January 2003 after being captured in Afghanistan.

"There's no doubt in my mind he would've been on one of those planes had he gained access to the country in August 2001," Crawford said of Qahtani, who remains detained at Guantanamo.

Pentagon spokesman Geoff Morrell said in an e-mail to the Post that investigations into detention operations "concluded the interrogation methods used at GTMO, including the special techniques used on Qahtani in 2002, were lawful."

Israel Says Hamas Is Damaged, Not Destroyed

TEL AVIV — Despite heavy air and ground assaults, Israel has yet to cripple the military wing of Hamas or destroy the group’s ability to launch rockets, Israeli intelligence officials said on Tuesday, suggesting that Israel’s main goals in the conflict remain unfulfilled even after more than two weeks of war.

The comments reflected a view among some Israeli officials that any lasting solution to the conflict would require either a breakthrough diplomatic accord that heavily restricts Hamas’s military abilities or a deeper ground assault into urban areas of Gaza, known here as a possible “Phase Three” of the war.

As the conflict entered its 19th day on Wednesday, three rockets fired from south Lebanon landed outside the town of Kiryat Shmona in northern Israel, but caused no casualties, the Israeli authorities said. The Israeli military said it fired back. It was not immediately clear who fired the rockets into Israel. A similar incident last week raised concerns briefly that a second front had opened in the war. But Hezbollah, the militant Shiite group which fought a war with Israel in 2006, quickly sought to assure the Lebanese government that it was not responsible.

In Gaza, the Israeli intelligence officials said, there were some signs that the military assault had undermined Hamas’s political cohesion, and that Hamas’s leaders in hiding inside Gaza were more eager for a cease-fire than group leaders in exile. They described this assessment as based on hard intelligence, presumably telephone intercepts.

A senior Egyptian official in Cairo said separately on Tuesday that representatives of Hamas had disagreed openly when participating in continuing Egyptian efforts to broker a cease-fire.

Inside Gaza, the military wing of Hamas has been hit “to a certain extent” with “a few hundred” Hamas fighters killed during the ground offensive that began midway through the war, the intelligence officials said. They spoke on condition of anonymity in return for discussing internal assessments of the conflict. Hamas is still able to launch 20 to 30 rockets a day, including 5 to 10 missiles of ranges longer than 20 kilometers, or about 12 miles, down by a third from the start of the war, the officials said.

Greater damage has been done to Hamas’s capacity to run Gaza, with a large number of government buildings destroyed over the course of the operation, they said.

The Israeli Army’s chief of staff, Lt. Gen. Gabi Ashkenazi, speaking to Parliament on Tuesday, said that “we have achieved a lot in hitting Hamas and its infrastructure, its rule and its armed wing, but there is still work ahead.”

In Egypt, efforts to broker a cease-fire were complicated by bickering inside Hamas, the Egyptian official said. The official said that Hamas representatives in Gaza were eager for a cease-fire, but were being blocked because political decisions were being made by the group’s leadership in Damascus, Syria.

“Hamas is in a very difficult position,” the Egyptian official said. “On the ground, their militants are not doing as good a job, not matching their rhetoric. But politically, they have been totally taken over by their sponsors.

“The guys inside are holding their ground, but they don’t want to continue the confrontation,” the official said. Egypt talks to Hamas but is not eager to see the radical Islamic group succeed in running a small statelet next door.

Israeli officials said they were delaying any expansion of the war until the negotiations succeeded or failed. But journalists and photographers along the Israeli border with Gaza said they saw large numbers of Israeli reservists moving into the territory, suggesting preparation for an intensified phase of the conflict.

On the eve of a visit to the region, which began in Cairo on Wednesday, the United Nations secretary general, Ban Ki-moon, demanded an immediate halt to the fighting in accordance with a Security Council resolution.

“Too many people have died,” Mr. Ban said, while Gazans are facing a humanitarian disaster. United Nations officials have said that three-hour daily humanitarian lulls are insufficient to provide enough food, medicine and other essentials to civilians. Israel said that 102 trucks carrying aid entered Gaza on Tuesday, with a total of 1,028 since the war began.

John Ging, director of operations in Gaza for the United Nations Refugee and Works Agency, who has been highly critical of the Israeli military action, said by video link that the fighting was extracting an unacceptably high toll on civilians.

“Tragically, the horror continues overnight,” he said. “Nineteen children killed and 52 injured last night. I would hope that would motivate those who can help.”

Israeli officials say their primary aim in the operation is to stop Hamas from firing rockets from Gaza into Israeli cities.
Hamas is capable of building rockets with an advanced propellant that can go up to 18 miles, the intelligence officials said, using chemicals and parts smuggled in from Egypt. Hamas also is using 122-millimeter rockets that are Chinese-made and supplied by Iran that can go almost 25 miles, they said.

But they assessed the probability that Hamas now has rockets capable of going farther than 25 miles as “very low.”

On Tuesday, Hamas fired 11 rockets and six mortar shells into Israel, the Israeli Army said.

General Ashkenazi said that Israeli aircraft had carried out more than 2,300 strikes since the offensive began on Dec. 27.

In Tuesday’s fighting, 18 Palestinian fighters and seven civilians were killed, part of the 971 Palestinians who have died, according to Gaza’s Hamas-run Health Ministry. Those figures are not thought to include many of the fighters killed since the ground war began.

Thirteen Israelis have died, including 10 soldiers. The Israeli military said one Israeli officer was critically wounded and two Israeli soldiers suffered light wounds in fighting overnight. They were hurt, the military said, after a bomb exploded in a booby-trapped house that they were searching.

General Ashkenazi said that Hamas fighters were using suicide bombers, sometimes women and sometimes dressed as Israeli soldiers, to try to get close to Israeli troops and kill them. One Israeli soldier was killed last week by a Hamas suicide bomber, the Israeli intelligence officials said. The method of the attack that caused the death had not been disclosed before.

Moussa Abu Marzouk, the exiled deputy to the Hamas political chief Khaled Meshal, told Al Jazeera television on Tuesday that while the organization had “serious reservations” about the Egyptian cease-fire plan, he believed that it might be accepted if changes were made.

“If the initiative is accepted, it will be in accordance with the position set out by Hamas at the start, namely an Israeli withdrawal, a cease-fire and the opening of the crossing points” between Gaza, Israel and Egypt, he said.

The leader of Israel’s opposition Likud Party, Benjamin Nentanyahu, said Tuesday that ultimately Hamas would have to be removed from Gaza and if the government chose to do so in this war, he would support it.

“At the end of the day there will be no escape from toppling Hamas rule,” he said at a meeting with the Foreign Press Association, adding that “Israel can not tolerate an Iranian base right next to its cities.”

Rockets from Lebanon hit Israel -emergency services

JERUSALEM, Jan 14 (Reuters) - Three rockets fired from Lebanon hit northern Israel on Wednesday, causing no casualties, emergency services said, in the second such attack since Israeli forces launched their Gaza offensive.

There was no immediate claim of responsibility. Israel responded with artillery fire into south Lebanon, witnesses said.

"Three rockets fired into Israel landed outside the city of Kiryat Shmona," police spokesman Micky Rosenfeld said.

A fire brigade spokesman in northern Israel said the rockets landed in fields and no one was hurt.

Security sources in Lebanon said five rockets were fired but two fell short of the Israeli border.

Last Thursday, three rockets that Israeli officials said were launched by Palestinian guerrillas in Lebanon in solidarity with Palestinians in the Gaza Strip slammed into northern Israel, wounding two people.

That attack briefly raised fears that guerrillas in Lebanon might open a second front against Israel, which launched an offensive against Hamas militants in the Gaza Strip on Dec. 27.

But Israeli cabinet ministers said last week's rocket strike appeared to be an isolated incident. (Writing by Jeffrey Heller, Editing by Allyn Fisher-Ilan)

Worried EU states fly to Moscow, Kiev over gas dispute

MOSCOW/KIEV (Reuters) - Russia and Ukraine face another day of sparring over gas supplies on Wednesday and two European Union states launched fresh diplomacy to end a dispute that has left their economies without Russian gas for one week.

Russia began pumping gas meant for Europe via Ukraine on Tuesday, but the EU said little or no gas was flowing to countries suffering urgent energy shortages.

Russia accused Ukraine of shutting off gas to Europe, but Kiev said there was not enough pressure in the pipeline system.

The crisis has disrupted supplies to some 18 countries at the height of winter, shutting down dozens of factories in southeast Europe.

Two of the worst hit EU states, Bulgaria and Slovakia, sent their prime ministers to Moscow and Kiev in a fresh effort to get gas supplies restored.

Slovakian Prime Minister Robert Fico, who was in Kiev on Wednesday for talks with Ukrainian Prime Minister Yulia Tymoshenko, said the country had 11 days of gas reserves left.

"After 12 days, we will be obliged to resort to measures never seen in our history. May I simply ask how long this will go on?" he told Tymoshenko.

But Tymoshenko said her country could do little to help. "Ukraine does not have sufficient gas. We do not have our own supplies," she told Fico.

Fico is due in Moscow later to meet Russian Prime Minister Vladimir Putin alongside Bulgarian Prime Minister Sergei Stanishev and Moldovan Prime Minister Zinaida Greceanii.

Stanishev is under pressure to secure supplies for his country of 7.6 million people as limited domestic reserves are dwindling and anger among Bulgarians is mounting against his Socialist-led government.

Slovakia, which has a population of 5.4 million and gets almost all its gas from Russia, declared a state of emergency on January 6, under which gas deliveries to large clients were reduced. About 1,000 companies were forced to shut or cut production.

A deal brokered by the EU, which gets a quarter of its gas from Russia, had been intended to get supplies moving on Tuesday, with international monitors in place to ensure that Ukraine was not siphoning off any gas, as Moscow has alleged.

Russian state-controlled gas monopoly Gazprom declared force majeure on gas exports to Europe on Tuesday, meaning circumstances beyond its control prevented it from meeting its obligations to clients.

Gazprom is demanding Kiev hand over $614 million for unpaid gas bills and pay $450 per 1,000 cubic meters of gas in 2009. That is similar to rates paid by EU customers but a big rise on last year's price of $179.5.

Analysts in Kiev say Ukraine, saddled with debt and hard hit by the global slowdown, cannot afford that price.

POOR RELATIONS

The row, which has dented the reputation of both Moscow and Kiev as energy suppliers, also reflects their poor political relations. Moscow is vehemently opposed to moves by Ukraine's pro-Western leadership to join the U.S.-led NATO alliance.

The European Commission said Europe needed the gas urgently and an aide to Commission President Jose Manuel Barroso said on Tuesday that he had expressed disappointment over the low volumes pumped by Russia in a telephone conversation with Putin.

Gazprom's Deputy CEO Alexander Medvedev accused the United States of pulling the strings. "It looks like ... they (Ukraine) are dancing to the music which is being orchestrated not in Kiev but outside the country," he said.

State Department spokesman Sean McCormack rejected the charge as "totally without foundation."

Ukraine's economy -- based on steel and chemical exports -- has been hit hard by the global slowdown and its hryvnia currency has experienced sharp falls.

Pakistan dismisses Indian data as 'not evidence'

ISLAMABAD, Pakistan (AP) — Pakistan's prime minister has downplayed the significance of an Indian dossier on the Mumbai attacks, saying it only contained information and "not evidence," state media reported.

Yousuf Raza Gilani's remarks late Tuesday before Parliament were likely to anger New Delhi, which says the dossier provides evidence that Pakistani militants staged the November slaughter of 164 people. India specifically blames Lashkar-e-Taiba, a militant group believed to have links to Pakistani intelligence.

Pakistan only recently acknowledged that the only surviving Mumbai gunman was Pakistani, but it insists none of its state agencies played a role in the attacks. Under international pressure, Pakistan has detained some suspects allegedly linked to the attacks, while repeatedly calling on India to provide evidence to allow legal prosecutions.

"All that has been received from India is some information. I say information because these are not evidence," Gilani said, according to the Associated Press of Pakistan.

The dossier, handed over on Jan. 5, includes transcripts of phone calls allegedly made during the siege by the attackers and their handlers in Pakistan. Previously, India had given Pakistan a letter from the lone surviving gunman, Mohammed Ajmal Kasab, that reportedly said he and the nine other gunmen were Pakistani.

In his statement, Gilani said Pakistan was continuing to examine the dossier.

He also urged "pragmatic cooperation" between the two nuclear-armed neighbors, who have already fought three wars since gaining independence from Britain in 1947.

On Wednesday, gunmen riding on a motorcycle fired on a vehicle carrying police officers near the southwestern Pakistani city of Quetta in Pakistan's southwest Baluchistan province, killing four, said Mohammed Ishtiaq, an area police chief. Police were still investigating the motive for the shooting.

Baluchistan has long been the scene of a low-level insurgency, with militant groups seeking greater regional autonomy and a larger share of revenue from its natural resources.

In a separate incident there Wednesday, a roadside bomb critically wounded seven paramilitary troops in Dera Bugti district, some 310 miles (500 kilometers) east of Quetta, said Muhammad Ashfaq, a senior police official.

Sarbaz Baluch, a purported spokesman for the Baluch Republican Army, one of the main militant groups in the province, said the group staged the attack out of revenge after a large portrait of a slain nationalist Baluchi leader was removed from the area.

He claimed that four troops were killed and six wounded.

ran tells Obama: Don't repeat false U.S. charges

TEHRAN (Reuters) - Iran called on U.S. President-elect Barack Obama on Monday not to repeat what it said were false accusations leveled against the Islamic Republic by the outgoing administration in Washington.

The United States accuses Iran of seeking to develop nuclear weapons and President George W. Bush has spearheaded a drive to isolate Tehran internationally. Tehran denies the charge.

Iran's Foreign Ministry spokesman also suggested Tehran would respond in an "appropriate and timely" way to any change in U.S. behavior toward the country, which is embroiled in a row with the West over its disputed nuclear plans.

Iran, which has not had diplomatic ties with the United States in three decades, has reacted cautiously to Obama's election victory, saying it is waiting to see whether his presidency will herald real change in U.S. foreign policy.

Obama, who takes office on January 20, last week said he views Iran as a "genuine threat" but still favors initiating a dialogue with it. On Sunday, he said he will take a new approach toward Tehran that will emphasize respect for the Iranian people and spell out what the United States expects of its leaders.

"We have to see whether or not this change in orientation (by Obama) is in practice and whether it will bring about fundamental change in the behavior and stance of America in relation to Iran," Foreign Ministry spokesman Hassan Qashqavi told a news conference.

He said Obama should not "repeat past statements and instances whose falsehood has been demonstrated by Iran," a reference to U.S. accusations about Tehran's nuclear plans and other issues -- although he did not mention specific charges.

"This is a very important point and undoubtedly Iran will undertake an appropriate and timely measure proportionate with the new U.S. behavior and action," Qashqavi said.

Obama said on Sunday he was concerned about the Islamic Republic's support of the Lebanese Shi'ite movement Hezbollah and about Iran's nuclear enrichment, which he said could trigger a Middle East arms race.

Washington also accuses Iran of backing militants in Iraq, another charge Tehran denies.

In a shift from Bush's policies, Obama has said he would seek much broader engagement with Iran, saying he was prepared to offer it economic incentives to stop its nuclear program but also that tougher sanctions could be imposed if it refused.

Professor Mohammad Marandi, who heads North American Studies at Tehran University, said he did not believe this would make Iran stop its enrichment activities.

Iran says its program is aimed at producing electricity so that the world's fourth largest crude producer can export more of its oil and gas.

"Iran is adamant to pursue its nuclear rights ... I don't think they are going to be ready to halt enrichment," he said. "Obama has to recognize that Iran doesn't need American incentives."

Palestinian death toll tops 900: Gaza official

GAZA (Reuters) - Israeli troops fought fierce gun battles with Hamas fighters on Monday, keeping military pressure on the Islamist group while avoiding all-out urban warfare that would complicate ongoing diplomatic efforts to end the Gaza war.

Medical officials said the Palestinian death toll in the offensive Israel began 17 days ago had risen past 900 and included at least 380 civilians. Israel says 13 Israelis -- three civilians hit by rockets and 10 soldiers -- have died.

An Israeli military spokesman said army reservists had been thrown into the campaign that Israel launched with the declared aim of ending cross-border rocket attacks from the Hamas-ruled territory to its south.

But Israeli forces were still holding back from a threatened third stage of their deadliest assault on Palestinian militants in decades -- a push into the city of Gaza and other urban areas to add more punch to an air campaign and ground offensive.

Israeli Foreign Minister Tzipi Livni, a candidate for prime minister in a February 10 election, said the surprise bombing of the Gaza Strip at the start of operations on December 27 and an armored thrust a week later had "restored Israel's deterrence."

Morning radio programs in Israel, however, continued to be interrupted by announcements of "Color Red" alerts, heralding rocket attacks on towns where residents have only seconds to find shelter before salvoes hit. Ten rockets landed in the first half of the day, the army said. No one was hurt.

Israeli soldiers battled Hamas militants east and north of the rubble-strewn city of Gaza in what residents called ferocious fighting.

The Israeli military said its aircraft carried out more than 25 attacks, fewer than on many previous days. They struck Hamas gunmen, weapons caches, rocket and mortar launching positions and a smuggling tunnel under Gaza's border with Egypt, it said.

"Ground forces were involved in a number of incident in which gunmen were hit," the army said in a statement.

Medical workers said Israeli forces killed eight Palestinians, including at least four civilians, in Monday's violence.

In interview on Israeli Army Radio, Livni gave no indication when the assaults might end.

Political sources said Livni, chairman of the ruling Kadima party, and her main coalition partner Defence Minister Ehud Barak, head of center-left Labour, wanted to halt the operation in the Hamas-ruled territory as soon as possible.

But the sources said outgoing Prime Minister Ehud Olmert, who resigned as Kadima chief in September, disagreed and planned to present the issue in a cabinet forum where he has support.

CIVILIAN CASUALTIES

The Palestinian death toll since Israel's "Operation Cast Lead" began stood at 908, Gaza medical officials said. About 3,600 Palestinians have been wounded.

The health minister in the Hamas-run government in Gaza, Bassem Naeem, told reporters that 42 percent of those killed -- or about 380 -- were women and children. Israel, which says it has killed "hundreds" of fighters, has questioned civilian casualty figures from Gaza but has not offered its own estimate.

Reuters journalists covering sites of attacks and hospital facilities have seen dozens of bodies of women and children. Israel has accused Hamas, operating in densely populated areas, of using civilians as human shields.

"Every child and adult not involved with terror who has been caught as a casualty of our military efforts is a victim for which we apologize, which we want to prevent," Olmert said on Monday.

Egypt's state news agency MENA said more talks in Cairo with a Hamas delegation on an Egyptian plan for a ceasefire were planned for Monday after "positive" discussions a day earlier.

Hamas official Osama Hamdan said some delegates had returned to Damascus for consultations with the group's leadership.

Israel, which rejected a U.N. ceasefire resolution last week as unworkable, wants a halt to rocket attacks and measures to stop Hamas from rearming via the tunnels under the Egypt-Gaza border, in an area known as the Philadelphi corridor.

Western and Israeli officials said diplomats were discussing an internationally-assisted technical monitoring system to help Egypt stop weapons smuggling and intercept rocket shipments.

Egypt, concerned for its sovereignty, opposes stationing an international force on its side of the frontier.

International Middle East envoy Tony Blair said after talks with Egyptian President Hosni Mubarak in Egypt on Monday that "the elements of an agreement of the immediate ceasefire are there and are now being worked on very hard in great detail.

"This is a sensitive and delicate time in the negotiation but I hope they will bear fruit and I hope so soon. I hope we can achieve it (the ceasefire) within the coming days," Blair told reporters.

Hamdan said Hamas was working on a final position on the Egyptian proposal: "The movement has essential concerns over some aspects of this initiative and there are issues the movement cannot accept," he told Lebanon's al-Manar television.

Hamas leader Khaled Meshaal has said the group would not consider a ceasefire until Israel ended its air, sea and ground assault and lifted its blockade of the Gaza Strip.

Israeli warplanes have repeatedly bombed the Philadelphi corridor along Gaza's 14-km (nine-mile) border with Egypt, sometimes using "bunker buster" munitions that explode underground and cause shockwaves to try to collapse the tunnels.

Western diplomats, speaking on condition of anonymity, described a ground operation to retake the corridor and parts of the town of Rafah as one of Israel's leading "third phase" options if talks over a ceasefire founder.

A ground assault would allow Israel to use bulldozers and sonar equipment to root out tunnels that have yet to be destroyed with air power alone.

Local Palestinian tunnel operators estimated that several hundred of the secret passages have been disabled but that many hundreds of others remained intact.

Bush, Democrats Expect Bailout Deal

WASHINGTON -- Wrangling among the nation's top political leaders threw the Bush administration's $700 billion bailout plan into disarray late Thursday, but Friday morning President Bush and Democratic leaders in the Senate said they are confident a plan will pass.

Associated Press

President Bush on Friday morning said he is confident that a financial-crisis bailout package will pass.

In a short statement, President Bush cited disagreements on details of rescue plan but said everyone agrees action is needed now. Later, Democratic Sens. Harry Reid of Nevada and Christopher Dodd of Connecticut echoed the president's confidence that a plan will be reached.

Sen. Reid said there is no reason a deal can't be done before Monday, and Congress will stay in session until a deal is done. However, he said that White House officials must be more "realistic." Sen. Dodd outlined some "non-negotiable" aspects of any plan, including limits on executive compensation, taxpayer protections and oversight over the Treasury.

The Democratic leaders also were critical of Republican efforts to alter the plan, signaling out Republican presidential candidate Sen. John McCain as an obstructionist force. "The insertion of presidential politics has not been helpful," Sen. Reid said.

Despite a dramatic day of negotiations on Capitol Hill that seemed to promise a deal, leaders broke off talks Thursday night with no agreement and with plans to reconvene this morning, without House Republicans. It was the Republicans' surprise championing of a competing plan late Thursday that derailed a carefully crafted compromise previously taking shape.

Also raising the stakes: The demise of Washington Mutual Inc., the largest banking failure in U.S. history, sent a fresh message to Washington of the fragility of the financial system.

In a sign of the extraordinary tension, at one point in the afternoon Treasury Secretary Henry Paulson interrupted a small gathering of Democratic leaders at the White House with a plea for them not to say anything that might blow up the troubled deal, according to three people familiar with the matter. In doing so, the Treasury secretary got down on one knee, a gesture that one of these people described as a moment of levity in a rough day.

Earlier in the day, congressional leaders had hammered together the outline of a compromise that involved allotting the bailout money in installments. It was widely expected to result in a deal. However a pivotal afternoon meeting at the White House, attended by President George W. Bush, congressional leaders and the two presidential candidates, broke with no agreement.

One cause of the delay: opposition from House Republicans who have tried to fashion an alternative plan that, instead of relying heavily on taxpayer money, could let banks buy insurance for the troubled assets weighing down their books.

The snafu spawned a round of political finger-pointing, with most Democrats blaming Sen. McCain, whose decision to return to Washington and meet with congressional Republicans appears to have complicated days of negotiations.

Sen. McCain "goes to a meeting and all of a sudden, we lose all the Republicans who have been working with us for the last five days," said Rep. Ellen Tauscher, a California Democrat. "This has to be a bipartisan deal. Unfortunately Republicans walked off the field."

McCain aides argue there was no deal at hand because there wasn't enough support among Republicans to move an agreement through the Congress. Instead, aides cast Sen. McCain as working to put together an agreement that can pass. His aides said the Arizona senator wants the Treasury to have flexibility to make loans as well as buy assets.

Plowing Ahead

After the contentious White House meeting, Democrats reconvened a small, bipartisan group at 9 p.m. to try to plow ahead. As the evening wore on, some senators predicted a bill would pass over the weekend, possibly using a complex congressional procedure such as folding the bailout into an existing spending measure.

The meeting, attended by Mr. Paulson, lasted roughly an hour.

Democrats could decide to go ahead with their plan without Republicans. While this would ensure passage, it would essentially saddle Democrats with responsibility for a bailout package that has stirred up strong resistance among both Democrat and Republican voters -- with elections just weeks away.

Republican leadership aides said as few as 30 to 40 of the 199 House Republicans could end up supporting the Bush package.

If Democrats are forced to move forward on their own, the party's demands on the White House are sure to go up. Proposals that once seemed off the table -- such as a plan to give bankruptcy judges authority to adjust mortgage terms -- would likely gain new life. The prospects would also likely rise for Democratic proposals to stimulate the economy, such as new spending on roads and bridges and extended federal benefits for the unemployed.

Even a temporary hitch in the process of devising a rescue plan for the financial industry, could deal a fresh blow to the markets. The Dow Jones Industrial Average rose sharply on Thursday, partly due to expectations that a bailout deal was imminent.

After the late-afternoon meeting with President Bush broke up, White House spokeswoman Dana Perino said, "Members of the administration and the congressional leaders pledged to continue working together to finalize a bill that will address concerns and solve the problem as soon as possible."

Brown set for showdown at conference

Prime Minister Gordon Brown played up his economic credentials on Saturday to quieten persistent calls to step down from within the Labour Party as it meets for its annual conference.

Behind in the polls and with his economic reputation under scrutiny against a backdrop of a global financial downturn, Brown is fighting for his political life.

Writing in the Guardian, Brown sought to emphasise the role his government had played in tackling the financial shockwaves, despite the collapse of Northern Rock last year, the forced merger of another last week, and the economy tottering on the brink of recession.

"Just as when we stopped Northern Rock going to the wall, we took the necessary and decisive action this week to protect stability and keep the financial system moving," Brown wrote.

"We have acted to secure people's savings, support the housing market, and underpin liquidity in the banking sector."

It was an open pitch by the former finance minister to talk up his economic skills on the opening day of his party's decision-making gathering. Anything less than a command performance when he addresses party delegates is likely to see Brown's popularity further dented at a time he faces a low-level revolt within his party.

More than a dozen Labour MPs called for Brown to stand down or submit to a leadership contest last week, piling pressure on the prime minister just 15 months after he succeeded Tony Blair without an election.

Opinion polls show Brown is the least popular prime minister in 70 years, and his party lags the Conservatives by up to 28 points, a deficit that would translate into a heavy electoral defeat if an election were held.

Brown does not have to call the next election until June 2010. Given his and his party's lack of popularity, and the economic and financial problems affecting the nation, he is likely to wait as long as possible before calling it.

Instead, he hopes the conference can revive fortunes and party unity, and perhaps lay the groundwork for a fightback.

" People are beginning to see again that politics is not a permanent referendum on a government, but a choice between competing philosophies," Brown wrote.

"It is only a Labour government that is able to act now to tackle the instability in the economy and provide the security that businesses and families need."

CALL FOR UNITY

While last week was a torrid one for Brown, senior members of his party, including cabinet ministers, rallied around him on Saturday, describing him as the best man for the job.

Foreign Secretary David Miliband, someone tipped to succeed Brown if he were to be forced from office, called for party unity and for all members to throw their support behind Brown.

"It is time for the party to come together," he told the Mirror newspaper. "I've made it clear I don't think it's the time for a leadership election."

Others tipped as possible successors also threw their support behind Brown, a 57-year-old Scot regarded as a serious political thinker but without the style and charisma of Blair.

Yet despite the show of unity, not everyone agrees. An online poll of 788 Labour Party members showed 54 percent want another leader.

As a consequence every minister's speech to the conference in Manchester will be examined in detail for any sign of disloyalty.

No immediate rebellion is expected, but Brown will have to show he can still electrify the party with his own conference speech on Tuesday if he is to have any hope of stopping the constant challenges to his authority.

Iran vows to block any attack

Iran will stop any attacker before he can "pull the trigger" and sanctions intended to isolate the Islamic Republic have not worked, President Mahmoud Ahmadinejad told a military parade on Sunday.

The United States and its allies are seeking to step up U.N. sanctions on Iran over its disputed nuclear plans, which the West sees as a bid to build nuclear arms. Iran denies this.

There has been persistent speculation Washington or Israel might launch strikes on Iran's nuclear sites, as neither country has ruled out military action if diplomacy fails to end the row.

"If anybody dares to breach the boundaries of the Iranian nation, the Iranian nation's holy land and Iran's legal interests, our armed forces ... will break his hand before he can pull the trigger," Ahmadinejad said.

He was speaking at a parade broadcast on state television to mark the start of the Iran-Iraq war in September 1980.

Hundreds of troops marched past the official podium, followed by military hardware, including the Shahab-3 missile, which television commentators said had a range of 2,000 km (1,250 miles), putting Israel in range.

Trucks drove past bearing large slogans reading "Down with Israel" and "Down with USA." Also on show were Ghadr and shorter range Shahab missiles, unmanned planes, artillery and rockets.

Iran has dismissed reports of possible U.S. or Israeli plans to strike Iran, but says it would respond by attacking U.S. interests and Israel if any such assault was made.

"Today, Iran is not in a position to show even the smallest flexibility against the bullying of the enemies. History has shown that those who wish ill for Iran will gain nothing but regret," he said.

"The enemies of humanity ... had imagined that by military attack and economic and scientific sanctions they could break down our revolution and our nation," he said, adding that Iran's enemies had "lost hope".

Analysts say the United States could unleash vastly superior firepower in any attack on Iran, but that the Islamic state could hit back by striking at U.S. interests in the oil-rich Gulf and neighbouring countries, including Iraq.

Ahmadinejad said that despite sanctions, Iran had nevertheless built up its ability to produce weapons.

"Those who deprived us of the simplest defensive technology and put economic sanctions on Iran, today ... they should look carefully and see the Iranian nation's armed forces and the defensive achievements of the Iranian nation," he said.

Iran, the world's fourth largest oil producer, says it wants to master nuclear technology to make electricity so it can preserve more of its vast oil and gas reserves for export.

But its failure to convince world powers of its peaceful intentions has prompted three rounds of limited U.N. sanctions. Washington is pushing for a fourth, but China and Russia -- two of the five veto-wielding council members -- are reluctant.

Scandal-hit Olmert announces resignation

Israeli Prime Minister Ehud Olmert announced his resignation at a cabinet meeting on Sunday, but the scandal-hit leader could remain in office for weeks or months until a new government is formed.

In broadcast remarks, Olmert said he was announcing his decision "to resign from my post as prime minister of Israel".

Olmert, who faces criminal indictment in corruption investigations, said at the weekly cabinet session that he believed he was acting "properly and in accordance with good governance" in stepping down.

It was not immediately clear when Olmert would formally submit his resignation to President Shimon Peres. After he does so, he will become caretaker prime minister until Israel has a new government through a coalition deal or an early election.

Olmert was replaced by Foreign Minister Tzipi Livni as leader of the ruling Kadima party in an internal election on Wednesday.

He had promised to resign once a new Kadima chief was chosen. At the cabinet session, Olmert wished Livni well, shook her hand and called the country to support her.

If Livni, Israel's chief negotiator in peace talks with the Palestinians, gets the nod from Peres to try to form a new government, she will have up to 42 days to put together a coalition.

Failure to build a coalition would lead to an early parliamentary election, plunging Israel into deeper political uncertainty and dimming even further prospects of meeting a U.S. target for an Israeli-Palestinian peace deal this year.

Toll in Pakistan Marriott attack rises to 52

Searchers combing through the burnt shell of the Marriott Hotel in Pakistan's capital found more charred bodies the morning after a suicide bomb attack, bringing the toll to 52, a senior official said on Sunday.

An American and a German were killed, while at least 13 other foreigners were among 271 wounded in the devastating blast, Rehman Malik, the top official in the Interior Ministry, told Reuters.

Most newspapers estimated the toll would rise to 60.

Internal security in nuclear-armed Pakistan, a country vital to the war against al Qaeda and other Islamist militant groups, has deteriorated at an alarming rate over the past two years.

The bombing bore the signs of an attack by al Qaeda or an affiliate, a U.S. intelligence official said.

It came hours after new President Asif Ali Zardari, widower of assassinated former prime minister Benazir Bhutto, made his first address to parliament a few hundred metres (yards) away, calling for terrorism to be rooted out.

The tightly guarded hotel, part of a U.S.-based chain and popular with foreigners, diplomats and rich Pakistanis, was engulfed in flames for hours after the blast.

Zardari made a televised address to the nation on Sunday and said the bombing was cowardly.

"This is an epidemic, a cancer in Pakistan which we will root out," he said. "We will not be afraid of these cowards."

Pakistan's army is in the midst of a major offensive against al Qaeda and Taliban fighters in the Bajaur region on the Afghan border, while the U.S. military has intensified attacks on militants on the Pakistani side of the border, infuriating many Pakistanis.

Militants have launched bomb attacks, most on security forces in the northwest, in retaliation for the strikes on them.

"They're giving a very clear, unambiguous message that if the government pursues these policies, this is what (they) will do in response," Talat Masood, a retired general and defence analyst, said of the attack.

"They are saying 'we can strike anywhere, at any time regardless of how good you think your security is'," he said.

An al Qaeda video, released to mark the seventh anniversary of the Sept 11, 2001, attacks in the United States, included a call for militants in Pakistan to step up their fight.

"You must stand with your Mujahideen brothers in Afghanistan and ... strike the interests of Crusader (Western) allies in Pakistan," Mustafa Abu al-Yazid, an al Qaeda commander in Afghanistan, said on the tape.

20-FOOT CRATER

Saturday's attack was the worst yet in the capital. It came six months after a civilian government took power and a month after it forced former army chief and firm U.S. ally Pervez Musharraf to step down as president.

A crater up to 20 feet (6 metres) deep was in the road in front of the gates of the hotel, which had been bombed twice before. The Interior Ministry said the bomb probably contained more than 500 kg (1,100 lb) of explosives.

Fire engulfed the Marriott, though most of the people inside had managed to flee before it spread.

"We have found six dead bodies in the debris this morning, so the total number of dead is 52," the Interior Ministry's Malik said. "Among the dead, two were foreigners, one American and (one) German."

A Reuters photographer saw a dead body lying on a top floor balcony on Sunday morning.

Hospital officials said less than 20 foreigners had been wounded, and most had been discharged, with the exception of a British woman.

Many of Islamabad's expatriate community were considering leaving, having shrugged off earlier attacks in the city.

"We said we'd give it another 24 hours before deciding, but this is getting too close to home, said Steve, a British man who has worked in Islamabad for a Pakistani firm for several years and did not want to use his full name.

"I'll be speaking to my boss tomorrow."

Flames and smoke poured out of the 290-room, five-storey hotel located in a high security zone. Dozens of cars were destroyed and windows shattered hundreds of metres away.

Soldiers cordoned off the area. The fire was put out after six hours, but there were doubts whether it could be salvaged.

A wounded hotel security official said a truck had been stopped at the hotel's security barrier and two small explosions had gone off minutes before the main blast.

The owner of the Marriott, one of only two five-star hotels in the capital, said guards at the security gate had exchanged fire with the attacker before he set off the explosives.

Clemens Steinkanp, a German who was slightly wounded, said hotel security men had warned guests to move to the back of the building shortly before the bomb went off.

"Nothing happened for five minutes ... but then there was a huge blast," he said.

U.S. CONDEMNATION

Prime Minister Zardari is close to the United States and has vowed to maintain Pakistan's commitment to the U.S.-led campaign against violent militants, even though it is deeply unpopular.

The United States, Britain and the U.N. secretary general condemned the bombing.

"This attack is a reminder of the ongoing threat faced by Pakistan, the United States, and all those who stand against violent extremism," U.S. President George W. Bush said.

In his address to parliament, Zardari said Pakistan must stop militants from using its territory for attacks on other countries. He also said Pakistan would not tolerate infringement of its territory in the name of the fight against militancy.

Zardari, who won a presidential election this month, was due to leave for the United States on Sunday, and is scheduled to meet Bush in New York on Tuesday before the U.N. General Assembly.

McCain Health-Care Article Fuels New Clash Over Economy

An article about health care published in an obscure journal led to a new skirmish Saturday between the campaigns of Democrat Barack Obama and Republican John McCain over who should be trusted with the ailing economy.

The article, which appeared under Sen. McCain's name, included a favorable reference to banking deregulation that, in light of this week's near-meltdown in the financial industry, provided an irresistible target for Sen. Obama's campaign and once again put McCain on the defensive. McCain's campaign accused Obama of manufacturing an attack by deliberately misreading the Republican's words.

The article was published in Contingencies magazine, which is produced under the auspices of the American Association of Actuaries. In it, McCain touted his plans for increasing competition in health care as one way to expand coverage and reduce costs.

McCain wrote, "Opening up the health insurance market to more vigorous nationwide competition, as we have done over the last decade in banking, would provide more choices of innovative products less burdened by the worst excesses of state-based regulation."

Obama, appearing at Bethune-Cookman University in Daytona Beach, Fla., mocked his rival for sounding out of touch at a time when Washington is moving rapidly to re-regulate the financial industry to curb the excesses that put the system into near-paralysis in the past week.

"So let me get this straight -- he wants to run health care like they've been running Wall Street," Obama told the audience. "Well, Senator, I know some folks on Main Street who aren't going to think that's such a good idea."

The Obama campaign first learned of the McCain article when New York Times columnist Paul Krugman referenced it Friday night on his blog. Since then, officials in the campaign have spread its contents as quickly as possible.

McCain's campaign, caught off guard by the uproar caused by the article, called the criticism from Obama a red herring. What McCain was referring to, one of his advisers said, was the change in regulations that allowed banks to operate across state lines, thereby opening up more competition while providing easier access to services for consumers.

"This is absurd," McCain senior economics adviser Doug Holtz-Eakin wrote in an e-mail sent to reporters. "If Barack Obama thinks that today's financial troubles were caused by policies which allowed Americans to use an ATM anywhere in this country, then it is better that he continue to be silent about solutions to the crisis on Wall Street. That crisis arose from corruption and regulators asleep at the switch. It's also possible Senator Obama is simply a dishonest politician who will say anything to get himself elected and just isn't ready to be President."

Coming only a few days after McCain had defended the economy as "fundamentally strong" as the stock markets were plunging last Monday, however, this latest episode underscored anew the extent to which the economic crisis has put McCain on the defensive.

McCain moved immediately to deal with his comment about the economy's fundamental soundness, and over the next several days he pushed an increasingly populist message that emphasized the tough times Americans are facing and called for cracking down on corruption and greed on Wall Street.

Obama unloaded on McCain during appearances Saturday. He fired back at McCain for running ads linking him to former top executives of Fannie Mae, James A. Johnson and Franklin Raines. Johnson briefly headed up Obama's vice presidential search team but stepped aside when controversy arose over his role at Fannie Mae. Raines recently settled with the government after being tagged in a huge financial scandal at the mortgage financing institution.

Obama said he had met Raines only once and talked to him for about five minutes, denying that Raines played any real role in the campaign. Raines issued a statement this week saying he had not been an adviser to the campaign.

Instead, Obama cited comments by the former head of Fannie Mae's government relations office, who was quoted by Politico.com as saying, "When I see photographs of Sen. McCain's staff, it looks to me like the team of lobbyists who used to report to me."

"Folks," Obama told his audience in Daytona Beach, "you can't make this stuff up."

With millions of Americans worrying about their retirement security as federal officials rushed to stabilize the shaky financial system, Obama also seized on McCain's support for partial privatization of Social Security. He said McCain was prepared to gamble with people's life savings.

"If my opponent had his way, the millions of Floridians who rely on it would've had their Social Security tied up in the stock market this week," he said. "Millions would've watched as the market tumbled and their nest egg disappeared before their eyes. Millions of families would've been scrambling to figure out how to give their mothers and fathers, their grandmothers and grandfathers, the secure retirement that every American deserves."

The statement appeared to be a substantial exaggeration, and the McCain campaign quickly fired back.

McCain spokesman Tucker Bounds accused Obama of not telling the truth.

"John McCain is 100 percent committed to preserving Social Security benefits for seniors, and Barack Obama knows it," he said in an e-mail sent out while Obama was speaking. "This is a desperate attempt to gain political advantage using scare tactics and deceit."

Bounds pointed out that Obama has expressed support for government support for private accounts that would be an accompaniment to Social Security and said the senator's remarks were "a perfect demonstration of his willingness to ignore facts in favor of his own self-promotion."

Two U.S. citizens killed in Mexican prison riot

Two of the 19 people killed in a prison riot in the Mexican border city of Tijuana on Wednesday were U.S. citizens, a spokeswoman at the U.S. Embassy in Mexico City said on Friday.

Over twenty inmates died and several dozen were wounded in back-to-back riots in the overcrowded Tijuana prison.

Tensions first broke out on Sunday during family visiting hours in the La Mesa jail after a prisoner died inside, apparently abused by the guards.

Four inmates died in the first spate of clashes and another 19 were killed in new rioting on Wednesday. Many others were injured.

"Two of the dead and three of the injured are American citizens," said the embassy spokeswoman. She said she did not know the names of the dead or where they were from.

Medvedev condemns Georgia NATO membership promise

Russian President Dmitry Medvedev said on Friday NATO's promise to extend membership to Georgia was unjust, humiliating and intolerable to Moscow.

Briefing Russia experts, Medvedev compared Georgia's attack last month on its rebel, pro-Russian enclave of South Ossetia to the al Qaeda attacks on the United States which killed nearly 3,000 people on September 11, 2001.

He said Russia -- which responded by sending troops and tanks deep into Georgia and routing it in a five-day war -- would have acted just as decisively if the former Soviet republic had already had a roadmap for NATO membership instead of just a promise of future entry.

"NATO won't become stronger this way, global tensions won't be reduced. What if Georgia had a NATO membership action plan? I would not wait for a second in making the decision I made at that time. What would the consequences be? They could be much worse," he said.

NATO's treaty provides for member states mutually to defend each other against aggression. The membership action plan does not provide the same protection, but members may nevertheless feel obliged to intervene.

Georgian membership would be a destabilizing factor, both for the Western military alliance and for the volatile Caucasus region, Medvedev said in an impassioned presentation to the annual meeting of the Valdai Club, which groups journalists and Russia analysts.

"The situation is not fair to Russia, it is humiliating to Russia and we are not going to tolerate this any longer."

CHANGED WORLD

He said Georgia's attack on South Ossetia and the West's failure to back Russia had exposed as an illusion any lingering belief in Russia that the world was a just place.

"The world has changed. Almost immediately after the events in the Caucasus it occurred to me that August 8 was for us almost what 9/11 was for the United States.

"The United States and the whole of humanity drew many lessons from September 11, 2001. I would like to see August 8, 2008 result in many useful lessons as well."

Respect for international law, a more effective global security system and a shift away from U.S. dominance of international diplomacy were among the goals he listed.

Medvedev, Prime Minister Vladimir Putin and many other Russian officials have publicly accused Washington of emboldening Georgian President Mikheil Saakashvili to attack the breakaway region of South Ossetia last month.

Russia responded by sending in its tanks to "muzzle Saakashvili". Hundreds died and tens of thousands were displaced in the five-day war.

Saakashvili set his sights on war after a visit by "Russia's very close partner" U.S. Secretary of State Condoleezza Rice, Medvedev said.

"Washington was giving Georgia the sense that Russia would not interfere, we didn't have the will or capacity," he added.

"These foreign policy failures by the United States and Georgia will be studied in foreign policy text books. In the case of Georgia it was also a crime."

The Russian president balanced his remarks by saying he did not believe the Caucasus crisis had caused a faultline in relations between Russia and the West, which would lead to another long period of confrontation.

"We don't need this," he said.

"We don't want to become a militarized country behind an iron curtain -- it's a bore, I've been there."

Car bomb kills 30 north of Baghdad: police

A car bomb killed 30 people and wounded 47 others outside a police station in a predominantly Shi'ite town north of Baghdad on Friday, Iraqi police said.

The attack in Dujail, in Salahuddin province, was one of the deadliest in Iraq in months and shows militants are still capable of carrying out large-scale bombings despite major security gains across the country.

Major Ahmed Subhi, head of an anti-terrorism unit in the province, told Reuters that 30 people were killed and 47 wounded.

Some officials said the attack was carried out by a suicide bomber although witnesses said it was a parked vehicle.

Police said the bombing occurred just before dusk, when many people were on the streets before breaking their daily fast during the holy Muslim month of Ramadan.

They said casualties were a mix of civilians shopping at a nearby market as well as police.

Dujail lies 50 km (30 miles) north of Baghdad.

The attack bore the hallmarks of Sunni Islamist al Qaeda.

A series of military offensives by U.S. and Iraqi forces has significantly weakened the militant group and forced its fighters into northern provinces such as Salahuddin.

Violence overall in Iraq has fallen to levels not seen since early 2004. Those security gains have allowed U.S. forces to begin withdrawing from Iraq.

Dujail was the site of an assassination attempt on former Iraqi leader Saddam Hussein in 1982.

Saddam, toppled in the U.S.-led invasion in 2003, was hanged in December 2006 after being found guilty in the killing of scores of Shi'ite men in Dujail after the attempt on his life.

Pakistan to protest new U.S. missile strike

Missiles fired by a U.S. drone aircraft killed 14 people in northwest Pakistan on Friday, security officials said, in a strike against suspected militants that drew condemnation from Prime Minister Yousaf Raza Gilani.

A U.S. commando operation inside Pakistan last week, followed by several attacks from drones, has sent tensions soaring between Islamabad and Washington over how to tackle the Taliban and al Qaeda on the Pakistani side of the border with Afghanistan.

Gilani said Pakistan would raise the issue with the United States at diplomatic level.

"We will try to convince the United States ... to respect (the) sovereignty of Pakistan -- and God willing, we will convince," he told reporters.

Security officials said about 12 people were wounded in the attack near the town of Miranshah in North Waziristan. Residents said the pilotless aircraft fired two missiles at a former government school where militants and their families were living.

"We confirm a missile attack at around 5.30 in the morning (2330 GMT on Thursday) ... We have informed the government," said military spokesman Major Murad Khan.

The military, apparently reluctant to highlight infringements of sovereignty, has rarely confirmed such attacks.

An intensifying insurgency in Afghanistan has raised U.S. fears about its prospects, seven years after U.S.-led forces ousted the Taliban. That worry has compounded pressure on Pakistan to go after militants operating from enclaves on its side of the border, including in North Waziristan.

Security forces stepped up offensives in two areas in August, the Bajaur region on the Afghan border and the Swat Valley in North West Frontier Province.

The security forces killed 40 militants, including foreigners, in clashes in Bajaur on Friday, raising the death toll to around 150 in fighting this week. Two soldiers were also killed and 16 wounded.

Hours after Friday's missile strike, a roadside bomb hit a security convoy in a nearby village, seriously wounding two soldiers. Soldiers in the convoy opened fire after the blast, wounding four civilians, residents said.

REVISE STRATEGY

Fears about Afghanistan's future and frustration with Pakistani efforts to tackle the militants have led to more U.S. missile attacks by drone aircraft in Pakistan.

About a dozen strikes this year have killed scores of militants and some civilians.

In addition, helicopter-borne U.S. commandos carried out a ground assault in South Waziristan last week, the first known incursion by U.S. troops into Pakistan since the 2001 invasion of Afghanistan.

Pakistan condemned the raid in which officials said 20 people, including women and children, were killed.

The U.S. military raised the prospect of more incursions on Wednesday, saying it was not winning in Afghanistan and would revise its strategy to combat militant havens in Pakistan.

Pakistani army chief General Ashfaq Kayani said in a strongly worded statement that Pakistan would not allow foreign troops onto its soil and Pakistan's sovereignty and territorial integrity would be defended at all cost. Kayani also dismissed speculation of a secret deal allowing U.S. forces to attack.

The New York Times reported on Thursday that President George W. Bush had secretly approved orders in July that for the first time allowed U.S. special forces to carry out ground assaults inside Pakistan without the approval of the Islamabad government.

U.S. officials declined to comment on the report and Pakistan's U.S. ambassador Husain Haqqani told Reuters Bush had issued no new orders.

Kayani ended a meeting with his top commanders on Friday saying the military, under government leadership, would protect Pakistan's territory and there was "complete unanimity of views between the government and the army" on the issue.

Tension with the United States has added to the worries of investors who have seen Pakistan's financial markets battered by political turmoil and economic problems.

At the same time, Pakistan is highly vulnerable to any reduction in U.S. financial support given the depletion of its foreign reserves, which has sparked talk it could default on a sovereign bond next year unless it gets foreign financing.

Dalai Lama calls special meeting to discuss Tibet

The Dalai Lama has called a special meeting of Tibetan exiles in November or December to discuss political unrest in Tibet this year and the future of the Tibetan movement, officials said on Friday.

Karma Chophel, speaker of the Tibetan parliament-in-exile, told Reuters that officials would meet on Monday to discuss the details of the special session ordered by their spiritual leader, the Dalai Lama.

The special meeting, the opening session of which would be addressed by the Dalai Lama, would be attended by Tibetan leaders, intellectuals and non-government organizations chosen by the Tibetan parliament-in-exile.

"We have to discuss who are the other people to be called," Chophel said.

The meeting of Tibetans comes after months of anti-China protests across the world, sparked off by unrest in Tibet in March which was aggressively suppressed by China.

Beijing says followers of the Dalai Lama fomented riots and protests across the mountainous region in a bid to derail last month's Olympics Games. The Dalai Lama has rejected the charge.

Envoys of the Dalai Lama and China met in July to defuse the crisis, the latest in several rounds of talks since 2002 that many Tibetans, especially younger generations, describe as a Chinese ploy to delay progress on the question of either independence or regional autonomy for Tibet.

The next round of those talks could be held as early as October, two Chinese sources with knowledge of the slow-moving dialogue, told Reuters last week.

Many exiled Tibetans would like to go further than the conciliatory "middle way" approach of the Dalai Lama, who seeks autonomy.

Tibetan officials said the meeting would see wide-ranging discussions about the future of the Tibetan movement.

"He will advise and he will give guidelines ... he will put before the general body his ideas," Chophel said of the Dalai Lama.

Obama 'lipstick' remark gets Republicans in a huff

Like "lipstick on a pig," the hot new debate of the presidential campaign has sparked one stunning distraction. As anyone knows, lipstick can smear.

Sen. Barack Obama, the Democratic presidential nominee running with a call for "change," insists he wasn't talking about Sarah Palin, the Republican nominee for vice president, when he said this about his rivals' claims that they are the true agents of change: "You can put lipstick on a pig, but it's still a pig."

The campaign of Republican Sen. John McCain is crying foul, reading sexism into the remark and demanding an apology. Yet McCain once had the same words for Sen. Hillary Clinton's health care plans. Campaigning in Iowa last fall, McCain argued that Clinton was rehashing the old reform she had promoted as first lady: "I think they put some lipstick on a pig, but it's still a pig."

It was Palin, the governor of Alaska and mother of five, who charmed the Republican National Convention with her explanation of the difference between a pit bull and a hockey mom—"lipstick." The McCain camp contends that Obama was clearly referring to that comment, and therefore to Palin herself, with his "lipstick on a pig" remark.

Now McCain and Palin are playing the "gender card," the Obama campaign contends. Obama spokesmen note that "putting lipstick on a pig" is a common expression for trying to dress up something bad—and Obama voiced it in the context of the candidates' economic plans—and they accuse McCain of "phony outrage."

It was only a few weeks ago that the situation was in some ways reversed. Obama warned voters that his rivals would try to scare them about voting for a candidate who doesn't look like the president on a dollar bill. The McCain campaign responded that Obama had "played the race card ... from the bottom of the deck."

Voters could be forgiven for thinking that the entire spat distracts voters from the real issues: the economy, the war, health care, education and much more. And, political analysts say, , the endless cycle of cable news and newspapers that love a fight are playing along by focusing on absurd arguments and supercharged words.

Obama sought to tap into that impulse Wednesday, after the Republicans introduced a Web ad on the topic, with some of the more impassioned language he's used in the campaign.

"What their campaign has done this morning is the same game that has made people sick and tired of politics in this country," Obama said. "They have seized on an innocent remark, try to take it out of context, throw up an outrageous ad, because they know it's catnip for the news media.

"Enough!" he added, his voice rising. "I love this country too much to let them take over another election with lies and phony outrage and swift boat politics. Enough is enough."

Some experts agreed.

"While we're concerned about lipstick on pigs—and pigs don't vote and have no constituency—we are missing the point," said Kathleen Hall Jamieson, co-author of a new book, Presidents Creating the Presidency, about presidential use of rhetoric.

But the GOP Web ad sought to link Obama's remark with his readiness to be president. "Ready to Lead? No," it said. "Ready to Smear? Yes." Meanwhile, former Massachusetts Gov. Jane Swift stepped out with a newly formed "Palin Truth Squad" to voice the McCain team's outrage over the expression.

The tempest began in Michigan on Monday, when Obama warned that McCain and Palin are trying to claim the change mantle even though their party has been in power for eight years. "How do they have the nerve to say it?" Obama asked. Later, in Virginia, Obama said, "You can put lipstick on a pig, but it's still a pig." As laughter erupted, he added, "You can wrap an old fish in a piece of paper called change, but it's still going to stink after eight years."

Vice President Dick Cheney said the same thing about President George W. Bush's rival, Massachusetts Sen. John Kerry, at the close of the 2004 campaign. On Kerry's wavering stances on the war, Cheney said: "As we say in Wyoming, you can put all the lipstick you want on a pig, but in the end of the day, it's still a pig."

Jamieson, director of the Annenberg Public Policy Center at the University of Pennsylvania, said the expression is a common one. "The inference in that speech was ... that John McCain was dressing up old ideas," she said. "The use of 'lipstick on a pig' was a colloquial, commonplace way of saying this."

At the same time, she said, Obama can be faulted for "priming" voters about the age of his senior rival for the White House by talking about wrapping an "old fish" in paper called change.