Iraq announced Tuesday that it will allow all 3,000 Soviets still stranded in the country to leave but demanded the Kremlin compensate Iraq for terminating their work contracts.

The official Iraqi News Agency said the decision was made by the ruling Revolutionary Command Council, which President Saddam Hussein heads.It quoted the council as saying that the Soviets, mainly oil industry experts, will be allowed to leave beginning Wednesday.

In Moscow, Foreign Ministry spokesman Vitaly Churkin and presidential spokesman Vitaly Ignatenko said Tuesday the Soviets have not received official confirmation of the INA report. "We have not yet had signals that would inspire such a hope," Ignatenko said.

Last week, Moscow accused Iraq of breaking a promise to allow Soviets to leave. It was the first time Soviet officials had accused Iraq of preventing Soviets from departing and came as Moscow adopted a harder line against Iraq.

Soviet Foreign Minister Eduard A. Shevardnadze later warned that Moscow, which has not sent troops to join the U.S.-led multinational force assembled against Iraq, would use military force if its citizens were harmed.

Tuesday's announcement indicated that Baghdad has decided to back off from a confrontation with the Soviets, Iraq's main arms supplier before the Aug. 2 invasion of Kuwait.

"We have decided to allow all Soviet experts wishing to travel out of Iraq to do so, provided that the Soviet government alone assume full responsibility for the consequences of breaking contracts in this regard," the INA said.

A Soviet Oil Ministry official, Sarkis Arkilian, has been in Baghdad for more than a week trying to negotiate permission for Soviet experts to leave.

None of the Soviets in Iraq is believed to be among the hundreds of foreigners - mainly Americans, Britons and Japanese - being held at potential military targets as "human shields" against a possible attack.

Churkin said Monday that about 40 Soviet military specialists remain in Iraq. He said they are unable to break contracts to train Iraqi soldiers to use and maintain Soviet-supplied weapons. He said the other Soviets worked for various Iraqi government agencies, mostly in energy and construction.

In Cairo, the foreign ministers of three major Arab states taking part in the multinational Persian Gulf force - Egypt, Syria and Saudi Arabia - resumed talks Tuesday after agreeing to step up diplomatic efforts to dislodge Saddam's army from Kuwait before the Jan. 15 deadline.

Egyptian President Hosni Mubarak joined in the talks.

Saudi Arabia's King Fahd said he warned Saddam Tuesday that the Iraqi leader would be wise to pull out of Kuwait now to avoid a military confrontation.

Egypt's Middle East News Agency quoted a government official as saying the three-way Arab talks in Cairo were intended to contain the crisis before it explodes.

In Washington, Defense Secretary Dick Cheney told a Senate hearing on U.S. policy in the gulf Monday that U.N.-imposed economic sanctions against Iraq will be insufficient to force Saddam to withdraw from Kuwait.

Cheney said time could weaken the international coalition arrayed against Iraq and that further damage could occur to politically and economically fragile nations, permitting Iraq to bolster its military strength.