President Bush said Friday that Iraqi support for terrorism against Americans would bring "serious consequences" and declined to rule out a first strike against Iraq by U.S.-led military forces.

"We hold Saddam Hussein responsible if there is any terrorist act against us," he declared.The president stressed his concern about terrorism by Iraq in a morning session with congressional leaders and again in a brief news conference on the White House lawn as he prepared to leave for a weekend at Camp David, Md.

The White House later announced that the administration would ask Congress early next week to expand arms sales to Saudi Arabia, with an expedited first phase of equipment and training.

A request for other items that are not as urgent will be sent early next year, Deputy White House Press Secretary Roman Popadiuk said in a statement.

Popadiuk would not discuss the amount of the proposed new arms sales, but reports circulating have put the figure as high as $21 billion, well above the $2.3 billion package already submitted to Congress.

Resorting to unusually strong terms, Bush also voiced a "deep and growing concern over what Iraq is doing to Kuwait." And he said that if the United Nations decides to widen its embargo against Iraq to include intercepting air traffic, "obviously the United States would do its part."

"There seems to be a systematic dismantling of Kuwait that does violence to the rights of every single Kuwaiti but also sends a signal that he (Saddam) is trying to incorporate Kuwait into kind of a piece of territory of Iraq," Bush said.

He spoke as the Persian Gulf crisis heated up on the diplomatic level, with Iraq's decision to expel three American diplomats. The United States retaliated by expelling three Iraqi diplomats from Washington.

Bush said economic sanctions against Iraq authorized by the United Nations remained "the major thrust of our policy."

But, asked whether he could make acommitment not to take the first shot at Iraq, Bush said: "I'm not making any commitments. There are so many contingencies. The treatment of American citizens is one thing that concerns me greatly."

At the same time, Bush said he did not want to send a signal "that I'm shifting more to the military."

In his meeting with congressional leaders, Bush said, "I indicated to the congressmen that I want to see a peaceful solution. Obviously these economic sanctions are going to take some time to work."

Iraq ordered the expulsion of dozens of U.S., European and Arab diplomats, and declared Friday it was on a "march to victory" and would never retreat from Kuwait.

The United States, Spain and Egypt immediately retaliated in kind for Iraq's expulsions, which included three American envoys.

Traders took heed of Iraq's bellicose statements, and oil prices soared above $35 per barrel Friday on the futures market, posting an all-time high for that market, which began trading in 1983.

Europe criticized Iraq's Saddam Hussein for inflaming tensions and weighed new ways to seal leaks in the embargo against Baghdad.

At the United Nations, diplomats were crafting a broad new Security Council resolution that would impose an air embargo against Iraq. No date was set for a vote.

As the crisis entered its eighth week, the chairman of the Senate Intelligence Committee, Sen. David Boren, D-Okla., warned that the situation in the Persian Gulf was "extremely dangerous."