PARIS — By surrendering to the street, President Jacques Chirac all but acknowledged his government is powerless to enact even a minor labor reform that many call a necessary step toward ensuring that France can compete with the likes of China and India.

While his decision Monday to cancel a law on youth employment averted the current crisis, it punishes his prime minister and favored successor, Dominique de Villepin — and fails to solve the deeper problems of a country adrift.

Unions declared victory, but energized students decided to go ahead with a "day of action" Tuesday to try to knock down other measures — designed to reduce the 22 percent unemployment rate among youths — that are viewed as threatening coveted job protections.

Chirac's decision to jettison a disputed jobs contract making it easier to fire young workers effectively buries any of the current government's plans to shake up the system.

"This sad adventure is an immense waste for our country," said Francois Hollande, leader of the opposition Socialist Party, in one of many jibes at the government.

Chirac said the measure would be replaced by one directed specifically at disadvantaged youths, many of them living in housing projects in poor, mainly immigrant suburbs. It would beef up measures already in place, rather than enact new ones.

The government has brought overall unemployment down from 10.2 percent to 9.6 percent. But joblessness among the nation's youths stands at 22 percent, soaring to nearly 50 percent in poor suburbs. Villepin looked to use the occasion to start whittling at labor laws that prevent French companies from streamlining and frighten some foreign firms from setting up shop here.

Chirac had ordered the pullback after weighing the results of talks with students and unions, the debilitating political fallout for the right and the danger of increasingly daring student protests on railroad tracks and highways.

Holding firm would have risked even more of the protests. The French employers group Medef grudgingly welcomed "the end to a crisis that has damaged the credibility of our country."

Even critics of the jobs law admit that the system is ailing, but the student protesters and labor unions say the antidote is more government help, not less.

The rejected law would have allowed employers to fire workers younger than 26 at any time during a two-year trial period without giving a reason.

The effort "was not understood by everyone. I express my regret," a humbled Villepin said.

The crisis also exposed French voters' lack of faith in their leaders.

"I don't think that it is impossible to carry out reform in France. The real crisis is a crisis of confidence," said political analyst Dominique Moisi.

"The French do not condemn reform, they condemn their elite and they condemn the manner in which the reform was imposed on them," he said.

Villepin hastily crafted the law as a partial response to riots last fall in the poor suburbs blamed partly on staggering youth unemployment — but also to shake up the country's rigid labor laws. He strong-armed it through parliament and stared down protesters for weeks, refusing to negotiate.

The crisis portrayed a government divided in a battle between the prime minister and the ambitious Interior Minister Nicolas Sarkozy, who is openly seeking the presidency. It also led to rumors that Villepin could resign and suggestions that any presidential ambitions of his own were cut short.

In an evening TV interview, the prime minister, calm and focused, reiterated earlier denials that his goal was the presidency. But he showed no sign of sinking into the shadows after being forced to abandon his jobs law.

"I have always said that I have no presidential ambitions," he said. He vowed to "continue to fight, continue to produce answers, to draw lessons and perhaps to come out with more experience."

Sarkozy, in a newspaper interview for publication Friday, made clear he was among the law's doubters but pledged unity with the government.

With unions banding together against the law, "one can only question the method and the fundamentals," Sarkozy said.

The replacement bill was filed Monday at the National Assembly, the lower chamber, and officials said debate might start as soon as Tuesday. In a fast-track scenario, the four-point measure could be passed by both houses by the end of the week, before parliament's spring recess.

The new bill would expand existing job contracts with the government, for example, offering more state support for companies that hire young, less qualified workers.

Other measures would increase internships in areas where jobs are relatively plentiful — such as in restaurants, hotels, or hospitals for work as nurses — or guide job seekers in their careers.

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France's most powerful union, the CGT, called the decision a "victory that builds confidence" to resolve the jobs problem.

Students were wary, saying they would push hard for other changes.

"We want to see how we can take advantage of this power struggle that is now in our favor to garner new victories," Bruno Julliard, the UNEF student association leader, told AP Television News.


Contributing: Nathalie Schuck and Jean-Marie Godard of Associated Press

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