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THOUSANDS OF IRAQIS RALLY AGAINST U.N. OIL OFFER, U.S.

Escalating a diplomatic standoff with the Clinton administration, Iraq on Saturday left little doubt that it will reject a U.N. offer to allow the isolated nation to sell $2 billion in oil for humanitarian purposes.

Though Clinton administration officials stressed that Saddam Hussein's government had not formally rejected the plan, the ruling Revolutionary Command Council and the speaker of the Iraqi Parliament both denounced it Saturday. In Baghdad, thousands of people flocked to the streets for two noisy demonstrations that excoriated both the United States and the U.N. offer."I think the voices of the masses have expressed the Iraqi stand. What you have heard from the people is rejection to this decision," Parliament Speaker Saadi Mahdi Saleh said before one of the rallies, which appeared to have been organized by the Iraqi government.

The Clinton administration reacted cautiously to the initial reports from Baghdad. Neither the White House nor the State Department issued a statement Saturday, and officials privately gave no indication that the United States would support a new overture to Iraq.

"The offer remains on the table," one senior administration official said. "We would hope Iraq (will reconsider) upon reflection when they see the (complete) lifting of sanctions is not around the corner."

On Friday, the United Nations unanimously approved a resolution that would allow Iraq to sell a limited amount of oil to buy food, medicine and other goods for its people.

The United States backed the resolution in part to head off growing pressure from France and Russia to completely lift the sanctions that have barred Iraq from selling oil abroad since the end of the Persian Gulf War in 1991.

Those sanctions have prevented Iraq from earning foreign currency and precipitated shortages in food and other essential commodities, particularly for middle-income and poor Iraqis.

Friday's resolution imposed strict conditions both on the sale of the Iraqi oil and the use of the proceeds. Every three months, $1 billion in exports would be allowed, and every six months, the Security Council would be called on to renew authorization of the program. The resolution in effect authorized $2 billion in sales.

It also mandated that Iraq ship most of the oil through a pipeline that runs into Turkey and required Iraq to use almost half the proceeds to pay war reparations, U.N. costs and relief to Kurds in Iraq's northern provinces.

Iraqi officials immediately condemned those provisions as an infringement on the nation's sovereignty. "The new resolution is worse and more dangerous than previous resolutions . . . which Iraq had strongly rejected," Iraq's Revolutionary Command Council, which met under President Hussein, said in a statement Saturday. Baghdad refused a 1991 proposal for a similar oil sale, calling it an insult to its nationhood.

Beyond the concerns about sovereignty, experts said Iraq was rejecting the resolution in hopes of increasing pressure for complete termination of the sanctions.

Prohibitions on Iraq's sale of oil are linked to efforts to defang Hussein's once formidable military machine. But the United States and some of its key allies differ on exactly what conditions Iraq must meet to free itself from the sanctions.