Thatcher Steps Down; Three Vie for Her Post : Britain: The prime minister had never lost an election. Tories will choose a new leader as early as next Tuesday.

Margaret Thatcher, beset by a challenge from within her own ruling party, stunned Britain on Thursday by resigning as prime minister.

Thatcher’s decision to step down under fire came during a fractious fight for the Conservative Party leadership--and only a day after she had vowed in the House of Commons: “I fight on. I fight to win.”

In the end, her own closest aides convinced her that the challenge mounted by former Defense Secretary Michael Heseltine had left her seriously wounded, and they warned her that Heseltine could defeat her in the next test for the party leadership.

The feisty, right-wing Thatcher has been prime minister longer than any other British leader in this century and has never lost an election.

Her decision threw wide open the contest for the leadership of Britain’s ruling party--and, automatically, the prime minister’s post. By the noon Thursday deadline for entering the race, three prominent Tories--Heseltine, former Deputy Prime Minister Douglas Hurd and Chancellor of the Exchequer John Major--had declared their candidacies.

Technically, Thatcher will remain prime minister and party chief until the Tories elect a new leader, who will then become prime minister. That could come as early as next Tuesday, when the party gathers to vote on its leadership.

When news of her resignation swept through the houses of Parliament Thursday morning, some of her supporters were seen to be in tears.

One of those, Home Secretary David Waddington, said: “I have never been sadder in all my life. She was a great leader, and the last thing I wanted was to see her step down in this way.”

But in the afternoon, Thatcher--whom some have dubbed “the Iron Lady”--demonstrated that she was still the head of government, giving a bravura performance in the House of Commons as she argued against a no-confidence motion introduced by Neil Kinnock, leader of the opposition Labor Party.

Speaking of his motion, Kinnock said, “There isn’t much of a government to have no confidence in.”

But buoyed by her tough, effective speech defending her government’s record, the Tories roundly defeated the no-confidence measure, 367 to 247.

Thatcher then summarily rejected a call by Kinnock that new national elections be called immediately. The next general election must be held before mid-1992, but the precise timing is up to the prime minister. Thus, considering their comfortable majority in Parliament, the Conservatives will remain in power for another 18 months.

In the raucous Commons session, Thatcher seemed relaxed, winning both laughter and applause, even from some of her longtime critics. Wearing her trademark bright blue suit, she castigated the opposition with a vintage performance and at one point declared, “I’m enjoying this.”

“You can wipe the floor with these people,” interjected one of her supporters, and Thatcher responded with an elaborate bow.

She was relentless in defending her policies. “We are no longer the sick man of Europe,” she declared to the lawmakers.

At one point, after she commented on the notion of a central European bank, which she has long opposed, Laborite Dennis Skinner jokingly called out that she herself could become the bank’s governor.

She did a double take, then exclaimed, “What a good idea!”

Thatcher’s agonizing decision was prompted by the challenge of former Defense Secretary Heseltine, who ran against her in the first ballot for party leader last Tuesday and succeeded in forcing her into a runoff. The second round now will be held without her.

After Thatcher’s resignation, two of her Cabinet colleagues announced their candidacy for the party leadership: Foreign Secretary Douglas Hurd, 60, and Chancellor of the Exchequer John Major, 47, both viewed as “stop-Heseltine” men.

If none of the three candidates gains a simple majority of the 372 Conservative members of the House of Commons on Tuesday, a final election will be held two days later.

Thatcher’s dramatic announcement came a day after she had participated in the 34-nation Conference on Security and Cooperation in Europe, in which she was the senior major national leader in attendance.

Hearing the news, her fellow world leaders expressed their sorrow at the prospect of her leaving the world stage, one on which she played a powerful role during her three consecutive terms and 11 1/2 years in office.

In all, she spent a total of 4,220 days at 10 Downing St., a time in which Britain’s first woman prime minister led the country in the 1982 Falkland Islands War and survived an assassination attempt in 1984 when the Irish Republican Army bombed the site of a party conference in Brighton.

President Bush, who counted Thatcher as one of his staunchest allies, said in Saudi Arabia, where he was visiting U.”. troops:

“Margaret Thatcher was an outstanding prime minister and an outstanding ally for the United States. You always knew where she was and what she believed. I’ll miss her.”

A U.” Marine was overheard telling the President: “I thought she’d duke it out,” and Bush replied, “So did I.”

In Los Angeles, former President Ronald Reagan, who was always grateful for Thatcher’s support of his conservative stance in foreign affairs, praised her “bold and visionary policies,” which he said restored Britain to greatness.

In Baghdad, Iraqi government spokesman Naji Hadithi declared: “This is most welcome news. Anyone who replaces her would be better than she was.”

Thatcher was notable in her support for Bush’s military commitment against Iraq in the Persian Gulf. And, holding true to form, she had Defense Secretary Tom King announce Thursday that Britain was sending an additional 14,000 troops to the multinational force in Saudi Arabia.

Thatcher was the first among Western leaders to welcome the advent of Soviet President Mikhail S. Gorbachev to prominence. It was the Russians who christened her “the Iron Lady.”

She was first elected leader of the Conservative Party in 1975, deposing defeated Prime Minister Edward Heath. In 1979, she led the Tories to victory over Labor, then beat the opposition again in 1983 and 1987. She was Britain’s first prime minister since the 19th Century to win three national elections.

Opinion polls showed that the party was generally more popular than she--due, political commentators said, to her often abrasive and authoritive manner, which she carried into relations with her Cabinet members.

Her decision to push for the so-called poll or head tax as the basic community fund-raising device was widely unpopular. And inflation and mortgages were recently at a near high for her government.

But the immediate events leading to her downfall began with the summit meeting of the 12-member European Community in Rome late last month, when she found herself, as usual, as the odd leader out--the lone objector to proposals for a common currency.

On her return to London, she gave a reasoned defense of her policy to the House of Commons but then, in the give-and-take of questioning, sounded particularly shrill in her comments against the Common Market.

This upset Deputy Prime Minister Geoffrey Howe, whom she had removed from the foreign secretary’s post. On Nov. 1, Howe resigned over Thatcher’s lack of commitment to a strong British role in Europe.

On Nov. 13, Howe, who had been regarded as a dedicated Thatcher loyalist, electrified the House of Commons with a scathing speech giving his reasons for his resignation. He openly criticized Thatcher and, in the view of many observers, inflicted irreparable damage to her.

That opened the door for Heseltine, 57, who has long been regarded as the strongest potential challenger to her leadership and who had resigned from the Cabinet as defense secretary in 1986 over his differences with Thatcher.

Heseltine announced his candidacy for the leadership, and last Tuesday, while Thatcher was at the Paris summit, ran well against her, holding her lead to only 55%.

Under the party’s complicated rules, Thatcher needed a majority plus 15% of the votes of the 372 Tory members, which she narrowly failed to get, in part because of the poor performance attributed to her campaign leaders in the contest.

At first, the prime minister reacted in typical fashion: In Paris on Tuesday and back in London on Wednesday afternoon, she vowed to fight Heseltine to the finish.

But late Wednesday, a steady stream of ministers and aides--dubbed the “men in gray suits”-- called at 10 Downing St., most of them warning her that she might lose next Tuesday’s second ballot against Heseltine. Her husband, Denis, also reportedly urged her to step down.

Rather than face the humiliation of defeat against a “backbench” member of Parliament--one who is not a party leader--the prime minister reflected long and hard and then, on Thursday morning, decided to step down, political sources said. She was driven to Buckingham Palace to inform -ueen Elizabeth II, who ultimately appoints prime ministers.

Her official announcement said: “Having consulted widely among colleagues, I have concluded that the unity of the party and prospects of victory in a general election would be better served if I stood down to enable Cabinet colleagues to enter the ballot for the leadership.”

In effect, Thatcher was forced from office--a development that has surprised and confused many observers abroad, since she still has not lost any election.

The question raised in political circles Thursday was whether Heseltine’s action would help or hurt the party in the run-up to the next election. Heseltine has run well ahead of Thatcher in nationwide opinion polls, but his opposition to the prime minister will be held against him by many colleagues.

Thatcher’s daughter, Carol, spoke for many loyalists when she said of the actions that forced her mother’s resignation: “I think it is the most gutless act of treachery-- after all she has done.”

Member of Parliament Alan Clark declared of the Tories’ leadership vote last Tuesday: “It was a cowardly act to save their seats. They hid behind a cloak of anonymity and voted against a leader who had run three elections.

“She was elected by 30 million people and tossed out by 150.”

Ex-Cabinet Minister Norman Tebbit, a Thatcher loyalist, said, “I think this was a dreadful mistake, dumping the prime minister.”

Novelist Jeffrey Archer, a former deputy Tory chairman, said, “For all the wrong reasons, we have lost the greatest peacetime leader of this century.”

Party Chairman Kenneth Baker, who urged her to stay in the race, said: “I am very sad. It was a typically brave and selfless decision. She was an outstanding leader of our country and the world. I do not believe we will see her like again.”

Former Deputy Prime Minister Howe, who began the erosion of her position, said, “She will always be remembered as one of the greatest political leaders in our history.”

Of the three candidates for the Conservative leadership, there is still no clear favorite.

Heseltine, who ran so strongly against Thatcher last week, would seem to be the front-runner, but some Tory lawmakers are thought to have voted for him mainly as a way of casting a ballot against Thatcher.

For his part, Heseltine said of the resignation, “She has made a remarkable contribution to Britain’s history and has led the country with great distinction in the 1980s.”

Hurd and Chancellor of the Exchequer Major, who are friends, said they both decided to join Heseltine in the race so that their colleagues could choose the candidate most likely to unify the party and take it into the next general election.

As Hurd put it, “We could have done this in a smoke-filled room, but this is the more open way for the party to make a decision.”

Both he and Major have wide appeal among their colleagues in Parliament.

Hurd is the most experienced in tough jobs. He was a secretary for Northern Ireland and the Home Office before becoming foreign secretary.

Major, 47, is the bright young man of the party, who seems to have few enemies. However, some of his colleagues suggest that because of his youth, he may comfortably be passed over for now.

Edwina Currie, a controversial member of Parliament who was forced out of the Thatcher government and is a Heseltine supporter, argued Thursday that the three-man race is an “undignified scramble.”

“At a time like this, the Cabinet should be sticking together and putting forward one name,” she said.

For Thatcher’s supporters, her bold handling of the Laborites’ no-confidence motion Thursday made her departure from government even more difficult to accept.

But, as one said, “there are no happy endings in politics.”

Worldwide reaction to Thatcher’s announcement reflects admiration for her achievements. A22