President Bush proposed Friday that the Soviet Union and the United States, together with all NATO and Warsaw Pact nations, open their skies to each other for unarmed aerial surveillance.

Outlining what would be a revised U.S. policy toward the Soviets and a test of the Kremlin's "new thinking," Bush also called on the Kremlin to "tear down the Iron Curtain" and allow free immigration of Soviet Jews.In a speech prepared for delivery at graduation exercises at Texas A&M University, Bush made a conditional offer of trade benefits and closer relations to integrate the Kremlin "into the community of nations."

Bush's address followed a three-month foreign policy review aimed, in part, at defining the U.S. posture toward Soviet leader Mikhail Gorbachev's stated reforms of glasnost and perestroika.

The president recommended that NATO and Warsaw Pact nations be permitted to fly unarmed surveillance planes over each other's territories.

"Such unprecedented territorial access would show the world the meaning of the concept of openness," said Bush, on a three-day swing to Texas, Mississippi and Kentucky.

Meanwhile in Brussels, Belgium, the NATO allies Friday welcomed in guarded terms Gorbachev's proposal to unilaterally cut 500 short-range nuclear weapons and called on Moscow not to stop there.

"We consider reduction in 500 weapons alone as a welcome, positive, but rather modest step," NATO said in a statement after U.S. Secretary of State James A. Baker III discussed his trip to Moscow this week with senior officials of the 15 other NATO nations.

NATO already has removed 2,400 nuclear arms in the past decade, the statement said.

"Our levels are much lower than those of the Soviet Union," it said and added that NATO looks to Moscow to make further "reductions in its unwarranted superiority."

NATO estimates the Soviet Union has 1,450 short-range nuclear missile launchers in Europe, against 88 for the Western alliance.

Baker discussed with the allies a new challenge by Gorbachev to cut not only short-range nuclear weapons but tanks, troops and aircraft in Europe as well.

While extending an olive branch to the Soviet Union, Bush also warned that the Kremlin "has acquired awesome military capabilities" and "as we seek peace we must also remain strong."

Bush offered to ease trade restrictions under the Jackson-Vanik Amendment in exchange for the Soviet Union lifting restrictions on immigration by Soviet Jews.

He also called on them to honor the "Soviet obligation - promised in the final days of World War II - to support self-determination for all nations of Eastern and Central Europe."

"One day it should be possible to drive from Moscow to Munich without seeing a single guard tower or strand of barbed wire," Bush said. "In short, tear down the Iron Curtain."

The president's proposed "Open Skies" plan dates back to President Dwight Eisenhower, who first suggested such a move 34 years ago for the United States and the Soviet Union.

Bush, in reintroducing the concept, noted that the Kremlin rejected the proposal in 1955, and recommended that this time the concept cover all NATO and Warsaw Pact nations.

"We suggest that those countries who wish to examine this proposal meet soon to work out the necessary operational details, seperately from other arms control negotiations," Bush said.