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After crisis talks in the White House, Mr Bush ordered Paul Bremer, the US administrator in Baghdad, to prepare for an interim Iraqi government as quickly as possible.
Jack Straw, the Foreign Secretary, indicated that power would be handed to the Iraqi people sooner than expected.
The U-turn came as a suicide bomber smashed into a police headquarters in alNasiriyah in the British-controlled sector, killing at least 27 people, including 18 Italians. It was the deadliest attack on non-American coalition forces since the war began.
In a unusually aggressive response, US warplanes dropped bombs on a building in the suburbs of west Baghdad. US officials said that the building was a nerve centre for Iraqi resistance fighters. Numerous other explosions echoed across the capital.
Opposition parties in some coalition countries, including Italy and Portugal, demanded the withdrawal of their troops from Iraq. The Dutch Army Chief of Staff demanded an urgent review of the safety of his 1,100 troops in the country.
Even before the atrocity in al-Nasiriyah, Washington was scrambling to inject momentum into the transfer of power after a month of increasingly deadly attacks and a sharply rising US death toll that have drained public support.
The imperative for Washington to change its strategy was underlined by the leak of a confidential CIA report which said that growing numbers of Iraqis supported the resistance because they believed that the US-led coalition could be defeated. It said that, without emergency measures, Mr Bush’s plans to rebuild Iraq as a democracy could collapse.
Mr Bush’s change of course marked an end to the seven-step plan drawn up by Mr Bremer that has, until now, guided Iraq’s political development. The next step would have been the drafting of a constitution, followed by popular ratification and elections.
But the White House has had growing doubts about Mr Bremer’s methodical approach and has been increasingly exasperated by the slow progress of the 25-strong, US-appointed Iraqi Governing Council (IGC).
Mr Bush, who faces an election in less than a year, has decided on an important shortcut, aimed at broadening the base of the ruling council and giving the Iraqi people wider representation.
In an irony that will not be missed in Paris, the Administration is essentially accepting the thrust of French proposals which it refused to contemplate two months ago.
Mr Bremer was last night taking proposals for an interim leadership and an interim constitution back from Washington to Baghdad to discuss with the IGC.
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