Secretary of State James Baker on Thursday proposed a new Middle East Bank for Reconstruction and Development to help rebuild that region following the war.

The entire region, including Iraq, "warrants the same spirit of multilateral commitment to reconstruction and development" as the worlds' developed nations have shown in other areas, including Europe and Latin America, Baker said.Baker suggested in terms stronger than previously used that aid to Iraq would be more likely if Saddam Hussein were no longer in power at the end of the war.

"There is no suggestion on our part that the rebuilding of Iraq could proceed, if the current leadership remained in power,," he said in response to a question from Sen. Richard Lugar, R-Ind.

Baker also said that if Saddam remains in power "we might very well be adopting different measures" regarding economic embargoes and weapons controls than if the Iraqi president were gone.

"Some decisions cannot be made until we know how the war will terminate," Baker said.

Baker appeared before the Senate Foreign Relations Committee as the president's two top military advisers testified before a House panel.

Baker called for "a coalition of countries using both local and external resources to transform the outlook for the region - in expanding free trade and investment, in assisting development and in promoting growth-oriented economic policies."

Baker noted that Iraq's people will be recovering from a disastrous war for the second time in 10 years.

President Bush on Wednesday repeated his upbeat assessment of the war's progress but tempered it with the difficulty ahead.

"Mission by mission, hour by hour, Iraq's capacity to wage war is being systematically destroyed by American and coalition forces," he told the Economic Club of New York. "And the road to real peace will be difficult, long and tough, I'd say, but we will prevail."

Bush touted the success of high-technology weaponry against Iraqi targets. He said that despite Iraqi protests of civilian casualties, the successful use of high-technology targeting had saved lives, including those of Iraqis.