CRISIS IN THE PERSIAN GULF : GULF WATCH: Day 109 : A daily briefing paper on developments in the crisis : Hostage Front:

Iraqi President Saddam Hussein offered to begin releasing all Western hostages on Christmas Day, “if nothing happens to disturb the atmosphere of peace,” the Iraqi news agency reported.

U.S. officials quickly rejected the overture. “They should never have been taken in the first place. He has it in his power to release them immediately,” an angry Secretary of State James A. Baker III told reporters in Paris. “This is just further cynical manipulation of innocent people’s lives.”

Meanwhile, a chartered Iraqi Airways Boeing 747 arrived in London from Baghdad early today, carrying 136 foreigners who had been detained in Kuwait, including about 75 American women and children, officials said.

Diplomatic Front:

President Bush and German Chancellor Helmut Kohl reaffirmed their intention to seek a diplomatic resolution to the crisis. “I think we’re in very close accord here. We’re not ruling out any options, we’re not ruling any options in,” Bush said in Oggersheim, Germany. “I want to see a peaceful resolution to this question.”

Baker conferred with French Foreign Minister Roland Dumas and other foreign leaders about a potential U.N. resolution authorizing force against Iraq.

Military Front:

A large U.S.-Saudi amphibious assault exercise in Saudi Arabia near the Kuwaiti border was stalled because of foul weather and high seas. Ten-foot waves kicked up by 20-knot winds forced U.S. military commanders to postpone the use of Hovercraft landing vessels that were intended to ferry Marines from ships onto Saudi beaches.

The operation, dubbed Imminent Thunder, involving 16 ships, 1,100 aircraft and 1,000 Marines, was meant as a demonstration of American military capabilities in advance of President Bush’s visit to the region Thursday.

Smaller Nations’ Forces in the Gulf:

* Argentina: Two ships bound for gulf. Training 100 troops for gulf duty.

* Belgium: Two minesweepers and a support ship.

* Bangladesh: 2,000 troops in Saudi Arabia, 3,000 more to be sent soon.

* Bulgaria: Chemical protection unit, 300-strong, to arrive by end of year.

* Denmark: One corvette in gulf.

* Niger: About 500 troops in Saudi Arabia.

* Pakistan: 2,000 troops deployed in Saudi

Arabia and 3,000 more promised.

* Senegal: 500 troops sent to gulf, may send 1,500 more.