Saddam Hussein, his armies reeling from a monumental

allied air and land assault, said Tuesday he had begun withdrawing his forces from Kuwait. But President Bush accused Saddam of "try-ing to claim victory in the midst of a rout" and pledged the war would not stop.The Kuwaiti Information Ministry said Kuwait City was free, and CBS-TV reported that allied troops had entered the capital to a welcome of honking horns and waving flags. But the U.S. military said while many Iraqis were fleeing, others were still there and offering "stiff resistance." Tanks battled for the city's airport.

"Today we will complete the withdrawal of our forces, God willing," Saddam told his war-wracked nation in an address on Baghdad radio. He said the emirate he annexed in August was no longer part of Iraq.

But Bush, reading a statement in the White House Rose Garden, said Saddam's statement was "an outrage" - Saddam had not agreed to U.N. resolutions on Kuwait, had expressed no remorse and had accepted no responsibility for "the awful consequences" of his nation's ag-gres-sion.

"Saddam is not interested in peace but only to regroup and fight another day," Bush said.

He called on all Iraqi soldiers to lay down their arms and said they would not be fired upon if they did.

The British War Cabinet agreed with Bush's assessment. But the Soviets urged an immediate cease-fire. President Mikhail S. Gorbachev suggested that superpower relations could suffer unless "a great sense of responsibility" guided U.S. efforts to end the war.

Even as Saddam spoke, allied troops in the third day of a huge ground offensive were surging north into Iraq.

U.S. military officials in the Saudi capital, Riyadh, said Iraqi forces in Kuwait were simply fleeing under fire.

"There are signs of Iraqi retreat as a result of pressure from coalition attacks," said a senior military official. "This is to prevent annihilation."

A senior Pentagon official said coalition forces had engaged key units of the Republican Guard and were blocking their attempt to retreat toward Baghdad. The official said allied troops had ranged as far north as the Euphrates River to cut off the Guard's "fighting withdrawal."

"They're not fighting real well by our standards, but they are fighting," the official said of Iraq's best troops.

"We're outflanking them, we're outmaneuvering them and destroying them in place," said Marine Brig. Gen. Richard Neal, at an early evening briefing.

"Let there be no mistake, the war is not over," said Neal, the chief of staff for the U.S. Central Command.

The allied forces are attacking the Iraqis in two main thrusts - a task force of 100,000 troops that has pushed into Iraq, outflanking the entrenched Guard; and a second drive through Kuwait to the capital.

Neal said allied forces have destroyed or rendered ineffective 21 Iraqi divisions - more than 200,000 men. An Iraqi infantry division is 10,000 to 12,000 soldiers. At the war's start, Iraq hadan estimated 545,000 soldiers in Iraq and southern Kuwait.

400 Iraqi tanks destroyed

He said coalition forces had destroyed more than 400 Iraqi tanks - up from the 270 reported Monday. Britain's 1st Armored Division engaged a large Iraqi force early Tuesday morning and demolished 40 tanks, he said.

Iran's Islamic Republic News Agency reported that Iraq had suffered the heaviest bombardment of the war, with allied overnight bombing concentrated along Iraq's southern, southeastern and eastern re-gions.

The toll from Monday's Scud missile attack on a makeshift barracks in Saudi Arabia climbed to 28 U.S. troops killed, 100 injured.

Otherwise, Neal said the number of other American casualties in the third day of the ground offensive remained at four dead, 21 wounded.

Baghdad radio said one Iraqi division came under attack as it tried to withdraw. It did not say where.

Rules for retreating soldiers

Bush spokesman Marlin Fitzwater had said before Saddam's speech that allied forces would "not attack unarmed soldiers in retreat, but we will consider retreating combat units as a movement of war."

Saddam's seizure of Kuwait 61/2 months ago set in motion months of efforts to get him out - and led finally to the outbreak of the Persian Gulf war nearly six weeks ago with U.S.-led forces first pounding Iraq's army, industry and transportation by air, then launching a ground offensive on Sunday.

Other than agreeing to withdraw, Saddam made no mention of complying with the U.N. resolutions, which include a call for war reparations to be paid by Iraq and for the renunciation of all Iraqi claims on Kuwait.

Iraqis devastate Kuwait

All Kuwait City government buildings and hotels have been destroyed in the past three days by Iraqi troops using tanks and artillery, Col. Abu Fahad, a member of the Kuwaiti resistence in Kuwait City, told Cable News Network.

"It was unbelievable. No nation in the world saw what we've seen here," he said in the telephone interview. "I have seen, by eyes, a lot of my friends and some of our guys executed in front of their families and their houses for nothing, just being in the country."

He said the Iraqis had taken thousands of prisoners with them, perhaps intending to use them as protection against the advancing allies.

The commander of British forces in the region, Lt. Gen. Peter de la Billiere, was the first senior allied official to state publicly that there were signs that the Iraqis were indeed withdrawing.

Five weeks of air strikes

Before the coalition's land assault began, Iraq had been subjected to more than five weeks of relentless pounding by coalition air forces, which hammered military and strategic targets at the rate of a mission a minute.

The coalition went to war against Iraq on Jan. 17, two days after the expiration of a U.N. deadline for Saddam to pull out of Kuwait, which he had seized Aug. 2 after squabbles over land, oil and money.

After the Iraqi invasion, the U.N. Security Council approved an escalating series of resolutions aimed at forcing Saddam to relinquish Kuwait. The dozen resolutions began with economic sanctions and were capped Nov. 29 with an authorization of force to evict Saddam's armies.

No conditions mentioned

In two peace offers this month, Saddam agreed to a withdrawal but attached various conditions. Allied leaders rejected both as insufficient.

In the speech to his people Tuesday, Saddam mentioned no conditions for withdrawal and portrayed Iraq's struggle as a heroic one, against great odds. Air-raid sirens sounded briefly at one point in the speech.

"Applaud your victory, my dear citizens," Saddam said. "We have faced 30 countries and the evil they have brought here. And we have faced the whole world. In this mother of battles, we have succeeded in harvesting what we have sowed."

Rejoicing in Baghdad

The speech brought wild rejoicing in Baghdad. Celebratory gunfire erupted in the streets.

The capital city of 4 million people has been devastated by air raids that have left it without power and drinking water, short on food and threatened by disease because its sewer system has been wrecked.

Residents went hungry because of food shortages, burned trees for heat and used horse-drawn carts after fuel supplies were cut off.

Saddam had sought for months to link the Israeli-Palestinian question to his conquest of Kuwait. All along, the Bush administration rejected any linkage, and Saddam said Tuesday: "The problem will be solved by the will of (the Palestinian) people at another time."

POWs bog down advancing units

The surprisingly swift allied blitz north was slowed somewhat - not by Iraqi resistance, but by the lack of it. The huge number of surrendering Iraqi soldiers bogged down some units.

"They're coming out all over the place with their hands up," said Col. Ron Rokosz of the 82nd Airborne Division's 2nd Brigade. "It's the most incredible thing I've ever seen. It was overwhelming."

Military police were guarding holding camps in Iraq and Kuwait overflowing with Iraqi prisoners of war. Authorities estimated that there were more than 30,000 but said they had given up counting at 26,000.

"We're not afraid, we're just tired of war," a soldier from Iraq's 48th Infantry Division said after he surrendered to the Army's 1st Cavalry Division.