Saddam gains in U.S. Mideast setback

By Paul Taylor

JERUSALEM (Reuters): Saddam Hussein is back.

As the United States' Middle East policy has foundered in the flames of Israeli-Palestinian violence, the Iraqi president is emerging from international isolation and chipping away at the edges of UN sanctions that have shackled him for a decade.

Analysts say Saddam has been the main indirect beneficiary of a wave of Arab and Muslim outrage at Israel's behavior and Washington's perceived support for the Jewish state.

A trickle of "humanitarian" flights from France, Russia and Middle Eastern states has turned into a stream and two Russian airlines now plan scheduled flights to Baghdad, breaching an air embargo the United States and Britain have upheld for a decade.

For the first time since the 1991 Gulf War, Iraq will attend an Arab summit in Cairo on Saturday, returning to the fold at a conference called to show solidarity with the Palestinians.

Vice-President Ezzat Ibrahim and Deputy Prime Minister Tareq Aziz will represent Iraq, but Saddam is staying home.

"Iraq has successfully engaged in a rollback strategy...with the easing of its diplomatic isolation over recent months," the Washington-based Petroleum Finance Corp said in an analysis.

"Despite the fact that most Arab states and Iran are still fearful of Iraq's potential power and ambitions, the country is seen as useful in bolstering the front against Israel, and perhaps more importantly as a means to signal discontent with the lack of strategic vision and perceived bias in U.S. policy."

Regional developments are raising doubts about the future of the no-fly zones that the two Western powers have enforced over northern and southern Iraq since the Gulf War, ostensibly to protect Iraq's Kurdish and Shi'ite civilian populations.

"Our coalition against Saddam is unraveling. Sanctions are loosened. He may be developing weapons of mass destruction. We don't know because inspectors aren't in," Republican candidate George W. Bush said in Tuesday's U.S. presidential debate.

While dismayed at these trends, U.S. and British officials insist that the core sanctions denying Saddam control of Iraq's oil revenues and tightly restricting imports remain in place.

But some acknowledge privately that the economic embargo is starting to look untenable and may have to be eased after a new U.S. administration reviews policy next year -- even if Saddam maintains his refusal to readmit UN arms inspectors.

Saddam's most significant gains have come in relations with his neighbors. Syria and Iran, both longtime bitter foes, have undertaken a rapprochement with Baghdad.

"This is as a counterweight to U.S. attempts to overthrow the Iraqi regime and replace it with a pro-Western regime," said Patrick Seale, a veteran Middle East analyst.

"Tehran and Damascus believe that an implosion or breakup of Iraq would be dangerous for them and are determined that any change must not be against Syrian and Iranian interests."

Seale noted that Baghdad had agreed during a visit by Iranian Foreign Minister Kamal Kharrazi last week to restore a 1975 border agreement which Saddam tore up when he invaded Iran in 1980, launching a bloody eight-year war.

Iraqi trade with Syria was growing and Damascus saw an opportunity for its Mediterranean ports to replace Aqaba in Jordan as Iraq's main commercial conduit, he said.

Western officials say Iran tolerates Iraqi oil smuggling through its coastal waters intermittently, clamping down only when Iraqi-based Iranian guerrillas stage attacks inside Iran.

The proceeds of oil smuggled out through Iran, Turkey and Jordan evade UN controls and maintain the lifestyle of Saddam and his loyalists.

Diplomats say even pro-Western states such as Saudi Arabia and Egypt, members of the U.S.-led coalition that drove Iraqi troops out of Kuwait in 1991, are reviewing policy towards Baghdad, partly under pressure from their publics.

Egypt has been expanding trade with Iraq within the UN oil-for-food deal and Foreign Minister Amr Moussa often calls for an end to sanctions, without saying they should be defied.

Increasingly, Gulf Arab officials argue that the world will have to deal with Saddam, however much they mistrust him, and that Arab public opinion demands an end to the suffering of ordinary Iraqis, which they blame on the sanctions.

Steven Simon, a former White House official now at London's International Institute for Strategic Studies, said he believed Saudi Crown Prince Abdullah had asked Washington and London to phase out patrol overflights of southern Iraq from Saudi soil.

"My instinct tells me he has told us, 'We've got to wind this thing up', without setting a deadline," Simon told Reuters.

But U.S. officials accompanying Secretary of State Madeleine Albright in Riyadh on Wednesday denied any weakening of Saudi support for the overflights.

NATO ally Turkey has threatened to restrict the "Northern Watch" patrols if the U.S. House of Representatives passes a bitterly disputed resolution recognizing the 1915 killings of Armenians by Turks as a genocide.

Even without the no-fly zones, Simon said the United States would have enough air power and troops in the Gulf region to prevent Iraq from threatening its neighbors, but it would be harder to stop Saddam moving against Kurdish or Shi'ite rebels.

The Iraqi leadership reaped a public relations windfall last weekend with its deft handling of the hijack of a Saudi airliner to Baghdad. But the courteous treatment of British and Saudi passengers is unlikely to soften Saddam's image durably.