Baghdad immediately denounced the US ultimatum of war if Iraqi troops fail to leave Kuwait.

The Western Allies are also demanding full withdrawal within a week and Kuwait City to be liberated within 48 hours with a return to legitimate government.

Prisoners-of-war should be released within 48 hours, as well.

President Bush declared: "The coalition will give Saddam Hussein until noon Saturday to do what he must do - begin his immediate withdrawal from Kuwait.

"We must hear publicly and authoritatively his acceptance of these terms."

Soviet peace plan

The Soviets have hurriedly come up with a new peace plan and President Mikhail Gorbachev has spent 90 minutes on the phone discussing this with President Bush.

But the proposals are unlikely to be accepted.

The Soviet plan requires withdrawal after - rather than before - a ceasefire and makes no guarantees of Kuwaiti sovereignty, the return of the emir or on war reparations.

The plan also gives Iraqi forces more time to leave Kuwait - 21 days for total withdrawal.

Mr Bush said he appreciated President Mikhail Gorbachev's diplomatic efforts but stood by his tough line.

He said that while Iraq seemed to be pursuing a peaceful solution by keeping dialogue open it was also maintaining a scorched earth policy by burning Kuwaiti oilfields.

"They are destroying the entire oil production system of Kuwait," he said.

The world's biggest oil slick combined with the largest ever oil fire now threatens to create a major environmental catastrophe.

In the last 24 hours, the Allies say as many as a quarter of the country's oilfields have been set alight. Millions of barrels of oil have already been dumped into the sea.

Air attacks on the Iraqi capital continued an hour after the ultimatum was issued and BBC reporters there say many Iraqi people would be glad to give up Kuwait to see peace restored to Baghdad.

	E-mail this story to a friend