Saddam Hussein says he expects the Palestinian question to be on the agenda of talks with U.S. officials on preventing war, for which Iraq has shown itself to be preparing with the test-firing of medium-range missiles.

The surface-to-surface missiles, with a range of 400 miles, were fired and landed Sunday within Iraqi territory.Iraq fitted similar weapons with conventional warheads during its eight-year war with Iran, but they could also be equipped with chemical weapons, Defense Secreatary Dick Cheney said in an interview on ABC-TV.

The U.S. military refused to confirm or deny reports that allied forces in the Persian Gulf went on alert after detecting the missiles, presumably with spy satellites or AWACS airborne early-warning radar planes.

"The flight path of the missiles was away from U.S. and coalition forces," according to a U.S. military statement in Saudi Arabia.

In an interview broadcast Sunday by a French television network, Saddam said the chances of war in the Persian Gulf stand at "50-50," with the outcome depending on the discussions between his government and Secretary of State James A. Baker III.

Bush offered on Friday to send Baker to Baghdad and the Iraqis accepted.

"If they want to make this meeting a real path toward dialogue, then we are closer to peace," Saddam said.

"But if they want to make this meeting nothing other than a formal exhibition for the American Congress, the American people or international public opinion, simply to give themselves good conscience to say, `There, we've tried to dialogue with Iraq, without Iraq renouncing its positions' - in that case, we're closer to war."

Saddam did not respond to the French reporters' questions about the possibility of an Iraqi withdrawal from Kuwait.

But he said the "dialogue" with Baker would have to deal with Israel's withdrawal from the occupied territories. The United States has rejected any such linkage.

The United States now has about 240,000 troops among the 350,000-strong force in the region. By next month, the number of U.S. soldiers in the force is expected to swell to around 400,000.

U.S. Marines began a four-day amphibious exercise on Sunday, the fourth since Operation Desert Shield began in early August. Military officials refused to disclose the location of the practice landings, the number of Marines involved or whether forces from other countries took part.

Also Sunday, U.S. Energy Secretary James Watkins met with Saudi Arabian Oil Minister Hisham Nazer in the Saudi capital of Riyadh to discuss plans to expand Saudi oil production and to keep prices from skyrocketing in the case of war, sources said.

Saudi Aramco is now pumping nearly 8.5 million barrels of oil a day. Before the crisis, its OPEC quota was 5.38 million barrels a day.

Crude oil prices doubled to around $40 a barrel soon after Iraq's invasion but have fallen to as low as $29 since. If war breaks out, they could shoot up as high as $100 a barrel, according to estimates by oil figures.

Meanwhile, former heavyweight boxing champion Muhammad Ali accompanied 15 Americans out of Iraq, and a spokesman said Ali plans to return to Baghdad on Christmas Eve to seek freedom for others. Two Canadians and six British employees of the U.S. Bechtel Corp. were also on Sunday's Iraqi Airways flight from Baghdad.

The Americans had been held at strategic sites in Iraq as "human shields" to deter attack by the multinational force.