Kuwait's exiled prime minister was quoted Friday as appealing for a military strike to oust Iraqi forces from his homeland. Diplomats said the occupiers had seized two American men who evaded capture for weeks.

Iraq gave new indications it might be willing to negotiate a settlement. President Saddam Hussein told Channel 3 radio of Algiers, Algeria, "When the greater interest demands it, everything is open to consideration." But he went on to rule out "ceding our rights."Soviet President Mikhail Gorbachev, opening a three-day visit to Spain, said his country favors a "political solution." Soviet Foreign Minister Eduard A. Shevardnadze, traveling with him, reportedly said Iraq appears to be seeking international talks.

However, the Soviet leaders said Iraq must withdraw from Kuwait.

There were also reports from Washington that Saddam has adopted a "scorched-earth" strategy if his troops are forced out of Kuwait. Administration sources said Iraq had used American and other hostages to wire Kuwait's four oil refineries with plastic explosives capable of knocking out the emirate's entire refining capacity.

In his comments, Kuwait's exiled prime minister, Sheik Saad al-Abdullah al-Sabah, urged a military strike to reclaim his own homeland - even if it meant leaving the emirate in ruins.

The Americans who were seized were identified by Western diplomats in Baghdad as Uwe Jahnke, 47, of Washington Depot, Conn., and John Stevenson, 44, of Panama City, Fla.

The diplomats, speaking on condition of anonymity, said the pair was brought to Baghdad on Oct. 22, a day after being picked up in Kuwait, and taken to a hotel where scores of other foreigners are being held.

In Canada, Prime Minister Brian Mulroney rejected the idea of sending a high-level envoy to win release of Canadian hostages in Iraq, calling it a bid by Saddam to divide the nations allied against him.

In other developments:

-Kuwait says casualties from the invasion were far higher than initially reported. The government-run Kuwait News Agency, monitored in Bahrain, said Friday that 4,200 Kuwaitis were killed during the invasion. Initial reports had said several hundred died.

-In Japan, opposition mounted to a proposal to send Japanese troops to the gulf. Thousands of demonstrators marched on the parliament building in Tokyo on Friday to protest the plan.