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Iraq has agreed to pull thousands of troops back from its disputed border with Kuwait, diplomatic sources say, after apparently forcing Kuwait to agree to end oil overproduction.

On Thursday, Iraqi newspapers suddenly ceased what had been daily attacks on Kuwait, and an Iraqi official confirmed that representatives of the two countries would open talks this weekend in the Saudi Arabian port of Jiddah.But the official, speaking on condition of anonymity, said President Saddam Hussein has not backed down on demands that Kuwait cut oil production, pay for oil Baghdad claims was pumped illegally from a field that straddles the countries' undemarcated border and forgive billions of dollars in loans.

"The ball is in the Kuwaiti court now," he said.

Diplomatic sources said late Wednesday that tens of thousands of troops reportedly sent to the border earlier this week by Hussein would begin withdrawing Thursday.

In Geneva, where OPEC was holding a midyear meeting, Iraq's oil minister denied there had even been a troop buildup, as published reports and diplomats had said. "There is no such thing as massing of troops along the border," Issam Abdul Rahim al-Chalabi said.

Oil-rich Iraq, with a $70 billion foreign debt after a fall in crude-oil prices and a costly war with Iran, last week threatened military action against fellow oil producers Kuwait and the United Arab Emirates for contributing to the overproduction that has driven down the price of crude.

Iraq has 17 million people, including 1 million soldiers. Kuwait has 1.8 million residents, 20,300 in the armed forces. The U.A.E. has about 1.6 million residents and a military with about 43,000 personnel.

In Geneva, OPEC oil cartel members this week are trying to put a lid on production to drive up the price, and officials from Kuwait and the U.A.E. indicated Wednesday that they are ready to go along.

That agreement, along with mediation efforts by Egyptian President Hosni Mubarak and other Arab leaders, appears to have reduced tensions considerably.

The Persian Gulf sources, who spoke on condition of anonymity, said Kuwait had insisted that Iraq withdraw the forces it reportedly massed on the countries' 100-mile border before it would negotiate this weekend with Baghdad.

They credited intensive mediation Tuesday and Wednesday by Mubarak and King Fahd of Saudi Arabia.

The announcement of direct Iraqi-Kuwaiti talks was made by Mubarak on Wednesday in Cairo, even as the Iraqi media stepped up an anti-American campaign in response to U.S. military muscle-flexing in the Persian Gulf.

The Pentagon had announced Tuesday that U.S. warships and aircraft were holding a "short-notice exercise" in the Persian Gulf with the U.A.E., a clear show of support for the two small states challenged by Baghdad.

In Baghdad, Hussein summoned U.S. Ambassador April Glaspie for talks on Wednesday. Government radio gave no details of the meeting.

In Kuwait, diplomatic sources said Hussein had assured Mubarak he would not use military force as long as Kuwait agrees to the following conditions: paying compensation for $2.4 billion in oil Iraq claims Kuwait stole, and holding direct talks on a border dispute.

The oil allegedly stolen was from the Rumaila oil field, which straddles the border. Iraq claims Rumaila is exclusively its own.

In addition, Iraq wants Kuwait to write off billions of dollars in loans it granted Iraq during the eight-year Iran-Iraq war that ended in August 1988. It also wants the reopening of a border air corridor.

The dispute flared last week when a bellicose-sounding Iraq accused Kuwait of stealing the oil and alleged that Kuwait and the U.A.E. were causing a slump in oil prices by exceeding their OPEC production quotas.

Baghdad's move was widely interpreted as an effort to pressure the two small states into agreeing at this week's meeting of the 13-nation Organization of Petroleum Exporting Countries to a proposal to cut oil output.

Oil prices, which had risen over the past week as the dispute between the two OPEC producers was being acted out, fell amid reports of the Iraqi assurances.

Quota-cheating, principally by Kuwait and the UAE, until recently meant total OPEC production was as much as 1.5 million barrels a day above the official combined ceiling.