Iraq must abide by U.N. resolutions, but military strikes against the Arab nation would be "highly dangerous," Russian President Boris Yeltsin warned Tuesday.

In his annual state of the nation address, Yeltsin alluded to the crisis, reiterating his view that diplomacy should be exhausted to persuade Iraq to fulfill the resolutions of the U.N. Security Council. "The use of force is the last option and a highly dangerous one," he said.Yeltsin has been a harsh critic of U.S. threats to use force against Iraq in the current crisis, saying earlier that such a strike could provoke a world war. The president was much more measured in his speech

Tuesday, referring to the crisis only briefly during a televised 30-minute address devoted to asking lawmakers to adopt a realistic budget for 1998.

He appeared vigorous and strong, and spoke in a clear voice. At the end of Yeltsin's speech, ultranationalist Vladimir Zhi-ri-novsky shouted out: "Boris Nikolayevich (Yeltsin), only you can stop (a war). All the world is looking at Moscow."

Yeltsin wagged his finger emphatically and sternly responded, "There is not a single person in the hall who deals with Iraq more than I do."

Zhirinovsky returned to Russia Tuesday from Iraq, where he led a parliamentary delegation that expressed solidarity with Iraqi President Saddam Hussein.

Russian diplomats have been trying to work out a compromise between Saddam, who has refused to allow weapons inspections of dozens of presidential sites, and the United States, which is demanding unfettered access for the inspectors.

Russia's Foreign Minister Yevgeny Primakov, who was in Greece, said he was confident a diplomatic settlement could be reached.

"We need to finalize the political mission first, and the goal of the political mission is (Iraq's) unconditional meeting of the demands of the world community," Primakov told Russia's RTR television.

"According to our information, (Iraq) is ready to do this," he was quoted as saying.

Most of Yeltsin's remarks were devoted to an appeal to lawmakers to adopt a budget that reflects the chronic problems of collecting taxes and limiting spending. He made the call a cornerstone of his annual address before both chambers of parliament.

"Enterprises are living on credit, even without thinking to pay off debts," Yeltsin said.