Iraq Proposes Linking Israeli Pullout to Crisis : Diplomacy: Hussein also wants sanctions ended and U.S. troops out. Washington rejects his conditions.

Iraqi President Saddam Hussein, saying he is seeking to create “an atmosphere of real peace,” Sunday proposed tying settlement of the Persian Gulf crisis to an Israeli withdrawal from the occupied territories, a Syrian pullout from Lebanon and a halt to international economic sanctions against his country.

The Iraqi leader also called for replacing U.S. military forces in Saudi Arabia with an Arab force under the direction of the U.N. Security Council in order to “place the region in a stable situation.” He warned that Iraq will “fight America’s evil plans” if his peace initiative draws no response.

Hussein made no specific pledge to withdraw his troops from Kuwait, the wealthy gulf sheikdom that Iraq has occupied since Aug. 2. However, he implied that an Iraqi withdrawal might be linked to the proposed pullouts in Israel and Lebanon with “an arrangement for the situation in Kuwait.”

There was immediate skepticism abroad toward the proposals, which involve Middle East conflicts that have festered for decades.

In Washington, White House Press Secretary Marlin Fitzwater said the United States “categorically rejects” Hussein’s proposals for withdrawing U.S. and other foreign forces from the region. Fitzwater called the new Iraqi conditions “another attempt at distracting from Iraq’s isolation and at imposing a new status quo.”

President Bush, asked whether he is pleased that Hussein appears to be talking about possible negotiations, told reporters in Maine: “I didn’t see anything to be pleasing in there at all. None. Nothing.”

Diplomats in the Middle East trying to negotiate a resolution to the crisis said Hussein appears to be shifting his focus away from the battlefield to what one called a “psychological operations” campaign. The campaign would aim to exploit rising Arab nationalist and anti-Zionist sentiment for Iraqi purposes, undercut moderate Arab regimes and further destabilize the region.

“Our biggest worry now is that the next step could be to somehow get Israel involved,” said one official. “The one other card he can play is the Israel card.”

Augustus Richard Norton, a senior research fellow at the International Peace Academy in New York and a specialist on the Middle East, sounded a similar note, saying that Hussein’s announcement appears to be carefully crafted to rally more support for Iraq among Arabs.

“It’s very clever,” Norton said. “Now he’s put the ball back in our court. It really puts us in a very tricky position and underlines the close ties between the U.S. and Israel. Especially in the refugee camps and (occupied) West Bank and Gaza, conspiracy theories have a lot of currency. Now he’ll exploit that fertile environment.”

As U.S., British and Egyptian forces continued to pour into Saudi Arabia to set up a protective shield against a possible Iraqi attack, Secretary of State James A. Baker III told ABC News in Washington that U.S. naval forces in the gulf are prepared to intercept Iraqi oil shipments to enforce an international trade embargo imposed by the U.N. Security Council.

Shipping officials in the gulf said the first test could come as soon as early today, when an Iraqi tanker is scheduled to pick up a load of Iraqi oil near the terminus of a trans-Saudi Arabian pipeline at Muajjiz.

Baker did not comment on the tanker specifically but said the U.S. plans to “take measures that are necessary and proportional to enforce the United Nations sanctions.”

With the failure of Arab leaders over the weekend to negotiate a diplomatic resolution to the crisis, nerves throughout the region were stretched taut. Hussein’s overtures toward resolution appeared unlikely to ease the tension.

In Israel, protective-equipment stores reported panic buying of gas masks, and an attorney petitioned the Supreme Court for the immediate distribution of gas masks to the public to counter any poison gas if the situation deteriorates into armed conflict.

Turkey’s prime minister asked Parliament for the power to declare a state of war, describing the request as a precautionary measure. Turkish officials said Parliament voted to grant the power but limited it to retaliation for an attack on Turkey.

Iranian President Hashemi Rafsanjani said Iran plans to maintain its military preparedness. “The presence of foreign forces has inflamed the Persian Gulf, and the region has become like a powder keg,” Tehran Radio quoted the president as saying.

Even Hussein appeared to be preparing for a long and unpleasant economic siege when he urged the women of Iraq to tighten their families’ belts in the face of growing economic sanctions, to cut their meat consumption in half and live with the clothing they already have.

“It is with this that we can hit the core of the American schemes, which they have plotted against us in accordance with the mentality that money is everything in life,” the Iraqi president said in a speech read by a Baghdad Radio announcer.

Iraq is still under heavy international pressure to account for the thousands of foreigners being kept against their will in Iraq and Kuwait, including 3,500 Americans. Baghdad said through its official news agency that authorities have been instructed to “facilitate the travel of Arab and foreign residents in . . . Kuwait . . . and others in south Iraq if they so wish.”

The agency did not make it clear whether foreigners would be allowed to leave the two countries, whose borders and airports remained closed.

Foreigners seeking to leave by land crossings continued to trickle across the borders into Jordan and Saudi Arabia. Among them were a California woman and her British companion who told news agencies that they made their escape by dressing in Arab clothing after having been turned back at the border crossing three times before.

The British Foreign Office said a British citizen was reported shot and killed by Iraqi soldiers as he and several companions tried to leave Kuwait to enter Saudi Arabia.

A Foreign Office spokesman said the British businessman’s death “must be construed as murder” and added: “This tragic death is a direct result of the Iraqi occupation of Kuwait. It must end. We call once again on the Iraqis to fulfill their obligations by ensuring the safety of our nationals and letting them return home.”

Kuwaiti diplomats told a London television station that the victim, identified by British authorities as Douglas Thomas Croskery, was in a convoy of two or three cars that encountered Iraqi troops near the Saudi border. The soldiers stopped the car and shot the man, then ordered the other occupants of the car to walk on to the border about 3 miles away, said Ghazi al Rayes, Kuwait’s ambassador to London. He did not disclose where he obtained the account.

In his radio announcement Sunday evening, Hussein proposed linking the Kuwait issue with those of the Israeli-occupied West Bank and Gaza Strip and Lebanon, a proposal that analysts said has no chance of practical application but which may arouse Arab public support.

Western officials have become increasingly concerned that Hussein’s frequent public appeals to Arab nationalist and anti-Zionist sentiment over the last several days are an attempt to undercut the moderate Arab regimes of the region that could ultimately be as dangerous as the 120,000 troops he has massed in Kuwait.

“What we’re seeing is a shift in the kind of war he thinks he’s fighting,” said one official. “It’s shifting from the conventional military operation to what the military calls psychological operations. . . . I think he feels the longer he sits there, the more he will come to be perceived as a champion, as a man who has courage, and a man who takes what he wants, which is a trait Arabs admire.”

Officials in Egypt and elsewhere in the region worry now that Hussein may try to draw Israel into the conflict, a move that would probably unite most of the Arab world around him against Israel and leave moderate Arab leaders alone and dangerously exposed.

The Iraqi leader has frequently equated Zionism with the American forces stationed now in Saudi Arabia. Twice in recent days, Iraq has alleged that Israelis are painting their military planes in American colors to go into combat against Iraq. The Israelis have denied the charge.

“In the event that he finds himself really pushed to the wall, and he doesn’t find support, Saddam can attack Israel,” said one analyst. “He would get pounded on, of course. The Israelis would respond by attacking some target in Iraq. But the point is, it doesn’t matter which side starts it. By inviting a conflict with Israel at the same time he is engaged in a confrontation with the Western forces, he immediately changes the nature of the confrontation.”

Sources in the region said U.S. officials have strongly urged Israel in recent days to stay away from the conflict and to consider carefully before responding to any Iraqi provocation.

Times staff writers James Gerstenzang, in Maine, and Robin Wright, in Washington, contributed to this story.