In Pakistan police academy 12 die in bloody siege

Black-clad Pakistani commandos overpowered a group of militants who had seized a police academy, took cadets hostage and killed at least six of them Monday in a dramatic challenge to the civilian government that faces U.S. pressure to defeat Islamic extremists.

The security forces stormed the compound on the outskirts of Lahore to end the eight-hour siege by the grenade-throwing gunmen, with three militants blowing themselves up and authorities arresting four, officials said. At least three other unidentified bodies were recovered.

Pakistan's top civilian security official said militant groups were "destabilizing the country," suggesting the plot may have originated with Pakistani Taliban leader Baitullah Mehsud.

Meanwhile, a Taliban member claiming to speak on behalf of a shadowy little-known group called the Fedayeen al-Islam said it was behind the attack.

Earlier this month, gunmen ambushed Sri Lanka's cricket team in Lahore, killing seven people and underscoring militants' ability to wreak havoc far from Pakistan's northwestern regions bordering Afghanistan where al-Qaida and the Taliban have proliferated.

Both Lahore attacks followed a crackdown on the Pakistani group Lashkar-e-Taiba, blamed for the November 2008 siege in Mumbai, India, that killed 164. There has been speculation that Monday's raid was revenge for the crackdown.

The primary victims of both attacks were Pakistan's undermanned and underequipped police, a militant strategy that appears designed to expose state institutions as weak.

Pakistan's inability to prevent the attack appeared to be an intelligence failure. Nonetheless, a massive response was quickly mounted Monday, one that included army soldiers, armored vehicles and helicopters.

The siege ended after security forces cornered several militants on the top floor of a building in the compound, where the gunmen had held about 35 hostages. Afterward, the security forces fired their guns in the air in celebration, shouting "God is great!"

"The eight hours were like eight centuries," said Mohammad Salman, 23, a recruit who had holed up in the building. "It was like I died several times. I had made up my mind that it was all over."

Interior Ministry chief Rehman Malik suggested the culprit could have been Lashkar-e-Jhangvi, a Punjab-based, al-Qaida-linked Sunni extremist group implicated in several other attacks in the country.

Lashkar-e-Jhangvi is one of several militant groups that operate well beyond Pakistan's northwest. Some of them, including Lashkar-e-Taiba, have their roots in the Kashmir dispute with India, and Pakistani spy agencies are believed to have helped establish them.

Lashkar-e-Taiba has denied any links to either the Mumbai or cricket attacks.

Malik also said the plot may have originated with the Pakistani Taliban in the northwest — noting that one of the arrested attackers was Afghan — and added that "some rival country," a usual reference to India, was trying to derail democracy in Pakistan.

"In our country, at our different borders, arms are coming in, stinger missiles are coming in, rocket launchers are coming in, heavy equipment is coming — it should be stopped," he told state TV. "Whoever the anti-state elements are, they are destabilizing the country."

The attacks pose a major test for the civilian administration of President Asif Ali Zardari, which has been distracted recently by political turmoil involving the opposition.

Pakistan's stability is of paramount concern to the U.S., which is fighting a growing Taliban insurgency in Afghanistan more than seven years after the American-led invasion ousted the militant regime from power there. Al-Qaida and Taliban fighters are believed to use hideouts in Pakistan's northwest to plan attacks on U.S. and NATO forces in Afghanistan.

Last week, President Barack Obama pledged more aid to Pakistan to help it fight militancy, while also urging it to tackle the "cancer" of extremism. He also warned that Pakistan could not expect a "blank check."

Obama's comments came amid continued complaints by U.S. officials that Pakistan's spy agencies still keep ties with some insurgent groups.

The attack exposed the state's weak police apparatus, something that could further demoralize many Pakistanis already unhappy with their nation's alliance with the United States and its support for the war in Afghanistan.

Military analyst Ayesha Siddiqa said the result of the attack was "greater fear."

"As a result of greater fear, there will be greater silence," she said. "Everyone is so fearful of the lethality of these organizations, people won't get up to protest. The government is willing to crack down on these groups, but the state can't achieve anything without pressure from society."

Abdullah Chaudhry, a 30-year-old driver watching the drama unfold, bemoaned the state's failings and asked, "If the police can be attacked like this, what chance does the common man have?"

The attack on the Manawan Police Training School began with sudden explosions that startled hundreds of trainees during a morning drill. About 700 were inside, and officials said more than 90 police were wounded.

"We were attacked with bombs. Thick smoke surrounded us. We all ran in panic in different directions," said Mohammad Asif, a wounded officer taken to a hospital. He described the attackers as bearded and young.

Government official Rao Iftikhar confirmed the death toll, saying three militants blew themselves up. Police official Ahsan Younus told The Associated Press that some of the attackers wore police uniforms and took hostages.

The standoff played out for hours on Pakistani television, similar to the Mumbai attacks.

TV reports showed frightened police trainees jumping over the academy wall to flee. Farther back, masses of security forces and civilians monitored the tense standoff, taking shelter behind rescue vehicles. Armored vehicles entered the compound while helicopters hovered.

Police captured one of the suspected gunmen six hours after the initial assault, dragging the bearded man to a field outside the academy and kicking him — all caught on camera.

After the siege, investigators sealed off the blood-spattered upper floor of a building where police said attackers blew themselves up to avoid capture.

Reporters looking through windows saw a severed head among the recruits' scattered bedrolls and metal trunks, on top of which police had lined up two assault rifles, several spare magazines and about a dozen grenades. One investigator gingerly fingerprinted a severed hand.

Samina Ahmed of the International Crisis Group, a think tank, said Pakistan has largely ignored some regional militant groups because successive governments have viewed them as allies in the conflict with India.

She said authorities need to recognize that the threat is not just from al-Qaida and Taliban militants on the Afghan border. "It is a threat and challenge that emanates from the heartland and can only be countered by civilian action and civilian efforts," she said.

Netanyahu appoints Steinitz as finance minister in Israel's

Incoming Israeli Prime Minister Benjamin Netanyahu unexpectedly named ministerial newcomer Yuval Steinitz as finance minister in the government to be sworn in on Tuesday, Channel 1 television said on Monday.

Netanyahu was widely expected to take the ministerial post himself and have Steinitz, a close confidant, working alongside him as a junior minister in the Finance Ministry.

But Channel 1 said the demands of the finance minister's job were such that "Netanyahu decided to appoint a full-time minister to the post."

Netanyahu won praise for his stint as finance minister from 2003 to 2005 when he pushed free-market reforms and cut public spending to stimulate growth.

The report described Steinitz as "lacking financial credentials" and said that Netanyahu had appointed him because of his loyalty and would keep a close watch on the ministry.

There was no official word of the appointment from Netanyahu's office over an hour after the Channel 1 report.

Netanyahu has said he plans to cut taxes to limit the impact of the global financial crisis.

Steinitz's biography on his own website (yuvalsteinitz.ning.com) describes him as "one of Israel's most unique politicians. An esteemed philosopher, academic, military strategist and author."

The biography said Steinitz holds a doctorate in philosophy from Tel Aviv University and lectured on philosophy at Haifa University in northern Israel.

As a lawmaker in the Israeli parliament since 1999, Steinitz has been one of Likud's foremost spokesmen on military and strategic affairs. He was a past chairman of the influential Knesset Foreign Affairs and Defense Committee.

He has often expressed hawkish views on regional security matters.

He began his political activity as a member of the left-wing Peace Now movement, which advocates giving up land Israel occupied in the 1967 Middle East war and which Palestinians want as part of a future state.

In his biography he described his disenchantment with the Oslo peace accords Israel signed with the Palestinians, his political movement to the right and his endorsement of Netanyahu and the right-wing Likud party in 1996.

Draws 80 Countries Conference in Afghanistan

Representatives from more than 80 nations, including the United States and Iran, are gathering Tuesday in the Hague for a key conference focusing on Afghanistan at a time when NATO and U.S. forces there are fighting a rising insurgency.

The Afghanistan conference follows the unveiling of a new U.S. strategy that calls for sending more aid and additional troops to conflict-torn country and to focus more on al-Qaida terrorists operating there.

Dutch Development and Cooperation Minister Bert Koenders, whose country is hosting the conference, says the meeting is not about dollars and soldiers, but about forging an international agreement on what to do in Afghanistan.

"Obviously the outcome of this conference has direct implications for troop levels and for money being spent on development cooperation," said Bert Koenders. "But I think the importance is to force a new international consensus and a contract between Afghanistan and the international community on mutual rights and obligations."

Mr. Koenders said the Afghan government should do more to fight corruption and to guarantee August presidential elections are free and fair. He says the international community should strike a better balance between military and non-military aid.

But European members of NATO are under pressure to come up with more troops for the alliance's operations in Afghanistan, particularly after U.S. President Barack Obama said he would add 4,000 troops to quell the rising insurgency. That is on top of the 17,000 new troops he has already pledged.

On NATO Secretary General Jaap de Hoop Scheffer also urged Europe to do more, saying this should not simply be Mr. Obama's war. World leaders are expected to discuss that issue at a NATO summit on the French-German border later this week.

Secretary of State Hillary Clinton will be joining representatives from more than 80 countries and international organizations at the conference. U.N. Secretary General Ban Ki-moon and Afghan President Hamid Karzai will also be there, as will representatives from Iran.

There appear to be no plans for high-level talks between U.S. and Iranian officials, but Minister Koenders says Iran's presence is key.

"I think they are very vital for the future of Afghanistan," he said. "It is a neighboring country. They have an enormous interest in stability in Afghanistan, in terms of the refugee flows they have had to deal with, but also in terms of exports of drugs from Afghanistan."

Russia's Foreign Minister Sergei Lavrov is also expected at the Hague meeting. Russia hosted its own conference on Afghanistan last Friday.

Dutch Development and Cooperation Minister Bert Koenders, whose country is hosting the conference, says the meeting is not about dollars and soldiers, but about forging an international agreement on what to do in Afghanistan.

"Obviously the outcome of this conference has direct implications for troop levels and for money being spent on development cooperation," said Bert Koenders. "But I think the importance is to force a new international consensus and a contract between Afghanistan and the international community on mutual rights and obligations."

Mr. Koenders said the Afghan government should do more to fight corruption and to guarantee August presidential elections are free and fair. He says the international community should strike a better balance between military and non-military aid.

But European members of NATO are under pressure to come up with more troops for the alliance's operations in Afghanistan, particularly after U.S. President Barack Obama said he would add 4,000 troops to quell the rising insurgency. That is on top of the 17,000 new troops he has already pledged.

On NATO Secretary General Jaap de Hoop Scheffer also urged Europe to do more, saying this should not simply be Mr. Obama's war. World leaders are expected to discuss that issue at a NATO summit on the French-German border later this week.

Secretary of State Hillary Clinton will be joining representatives from more than 80 countries and international organizations at the conference. U.N. Secretary General Ban Ki-moon and Afghan President Hamid Karzai will also be there, as will representatives from Iran.

There appear to be no plans for high-level talks between U.S. and Iranian officials, but Minister Koenders says Iran's presence is key.

"I think they are very vital for the future of Afghanistan," he said. "It is a neighboring country. They have an enormous interest in stability in Afghanistan, in terms of the refugee flows they have had to deal with, but also in terms of exports of drugs [from Afghanistan]."

Russia's Foreign Minister Sergei Lavrov is also expected at the Hague meeting. Russia hosted its own conference on Afghanistan last Friday.

Taliban-allied militants in Lahore attack blames by Pakistan

Pakistani authorities Monday blamed Taliban-linked militants for a bloody daylong assault on a police academy outside the eastern city of Lahore that left about 20 people dead, including at least four of the assailants.

In a chillingly methodical strike, heavily armed gunmen stormed the training center as recruits gathered for morning drills. The assailants held off elite army and paramilitary troops for nearly eight hours before finally being overpowered. At least three of the attackers blew themselves up as troops overran their last stronghold, an upper floor in the compound's main building.

Afterward, black-clad Pakistani commandos chanted "God is great!" and fired off rounds of celebratory gunfire.

The audacious attack was yet another sign of intensifying turmoil in Pakistan, considered a crucial U.S. ally in the fight against Islamic militants despite the fact that its year-old civilian government has been struggling to stay in control. President Obama declared last week that quelling the insurgency in Pakistan is key to success in the war in neighboring Afghanistan. He tied continuing U.S. aid to progress in confronting the militants.

The assault on the police compound, which began about 8 a.m., was swift and sudden. Pakistani news reports cited witnesses as saying that the gunmen, some in civilian dress and some in what appeared to be police uniforms, hit the lightly guarded compound from several directions at once, hurling grenades and gunning down police cadets on the compound's parade ground.

After a period of initial confusion, hundreds of army and paramilitary troops, including elite Rangers, were rushed to the scene. The Dawn news television channel reported that a helicopter was hit by assailants' gunfire as it flew in troops, but managed to land safely.

Shortly before 4 p.m., acting Interior Minister Rehman Malik announced that authorities had regained control of the compound. He told reporters later that the attackers were linked to Baitullah Mahsud, commander of Pakistan's Taliban movement.

About 90 people were reported hurt, with many of the wounded spending hours trapped inside as the battle raged around them. Some police trainees said they leapt from windows to escape, or scaled the compound's high walls to get away.

At one point, the assailants appeared to repel an armored personnel carrier that tried to enter the compound. The provincial governor, Salman Taseer, described the chaotic events as a "total siege."

It was the second major attack within a month in Lahore, the cosmopolitan city capital of Punjab province that was once considered a relatively peaceful corner of the country. On March 3, six police guards and a bus driver were killed there when gunmen attacked the visiting Sri Lankan cricket team.

The attack was also reminiscent of the November onslaught in Mumbai, when teams of gunmen hit luxury hotels and other sites around India's commercial capital in a series of coordinated strikes, leaving nearly 170 people dead.

In Lahore, the police trainees who were in the compound as the attack unfolded described an operation almost military in its precision.

"They kept on spraying bullets at us without stopping, and I saw many of my colleagues getting hit, crying out and falling to the ground," said a 23-year-old recruit, Mohammed Atif, who suffered minor injuries.

Throughout the day, Pakistanis were transfixed by live television coverage of the siege, which included images of dead police recruits lying on the ground inside the compound. Footage also showed a captured assailant prone on the ground, being kicked by police before they hauled him to his feet and led him away.

Analysts said the attackers' aim may have been to demoralize the government by humiliating the security forces. Many of recruits could be seen sobbing as they emerged from the compound. Some quit the force on the spot.

"It's very likely this group had perfect knowledge of the targets and knew the operational environment well," said Rohan Gunaratna, director of the International Center for Political Violence and Terrorism Research in Singapore. "They had familiarity with law-enforcement operations and their targets, and studied them very carefully over a period of time."

Automakers Not Moving 'Fast Enough' Says Obama

President Obama announced today that his administration will withhold additional federal aid to General Motors and Chrysler unless the ailing U.S. automakers submit acceptable restructuring plans, but he vowed that the American auto industry will not be allowed to "simply vanish."

In a speech at the White House, Obama blamed the industry's woes on "a failure of leadership -- from Washington to Detroit," and he said problems have been papered over and tough decisions avoided for decades as foreign competitors outpaced U.S. car companies.

"We, as a nation, cannot afford to shirk responsibility any longer," he said. "Now is the time to confront our problems head-on and do what's necessary to solve them."

He added, however, "We cannot, and must not, and we will not let our auto industry simply vanish. . . . It's a pillar of our economy that has held up the dreams of millions of our people. And we cannot continue to excuse poor decisions. We cannot make the survival of our auto industry dependent on an unending flow of taxpayer dollars. These companies -- and this industry -- must ultimately stand on their own, not as wards of the state."

Obama also said both GM and Chrysler might still be able to win additional federal aid but under stricter terms.

Making official what reporters were told over the weekend, the president said GM's longtime chairman and chief executive, G. Richard Wagoner Jr., is "stepping aside." Wagoner met with administration officials on Friday and agreed to the move.

"In the course of that meeting, they requested that I 'step aside' as CEO of GM, and so I have," Wagoner said in a statement released today. He praised the executives succeeding him and hailed GM employees worldwide. "GM is a great company with a storied history," he said. "Ignore the doubters because I know it is also a company with a great future."

U.S. stock markets plunged on the news. The Dow Jones industrial average was down more than 300 points, or about 4 percent, in mid-afternoon trading, and GM shares were off more than 21 percent. Shares of Ford, which did not receive federal bailout funds, were down about 2.8 percent. Chrysler is privately owned by Cerberus Capital and does not trade publicly.

Obama's announcement came after the administration effectively rejected as untenable the business plans that GM and Chrysler had submitted to restructure their companies, saying that neither had fulfilled the terms of the federal loans the companies received in December.

Chrysler, which the administration believes cannot survive as a stand-alone company, must reach an agreement to partner with the Italian automaker Fiat in the next 30 days to become eligible for as much as $6 billion in additional federal loans.

GM, which has shed thousands of workers since the downturn began, must devise a leaner business plan that probably will cut the company workforce and product lines even more than officials had contemplated. It has 60 days to come up with a new approach.

Obama said his administration has determined that neither company's restructuring plan "goes far enough to warrant the substantial new investments that these companies are requesting." While the automakers have made "meaningful progress in recent years," Obama said, the industry "is not moving in the right direction fast enough to succeed in a very tough environment."

Therefore, he said, he is offering GM and Chrysler "a limited period of time to work with creditors, unions and other stakeholders to fundamentally restructure in a way that would justify an investment of additional tax dollars."

He expressed confidence that "this restructuring, as painful as it will be in the short-term, will mark not an end, but a new beginning for a great American industry."

He said he was "absolutely confident that GM can rise again, providing that it undergoes a fundamental restructuring." He stressed that the U.S. government "has no intention of running GM."

If GM is unable to restructure and Chrysler cannot strike a deal with Fiat, they might need to use the bankruptcy code "as a mechanism to help them restructure quickly and emerge stronger," Obama said. He said that could enable the companies to "quickly clear away old debts that are weighing them down," even as their workers remain on the job.

"What I am not talking about is a process where a company is simply broken up, sold off and no longer exists," he said. "And what I am not talking about is having a company stuck in court for years, unable to get out."

To reassure car buyers, he said, the U.S. government starting today "will stand behind" GM and Chrysler warranties. That means that a new car warranty for a GM or Chrysler vehicle "will be safer than it's ever been," he said.

Reaction on Capitol Hill was mixed. Senate Majority Leader Harry M. Reid (D-Nev.) commended the administration for "showing a firm resolve in its negotiations with GM and Chrysler," adding, "We will not give these companies a blank check." But the Senate Republican leader, Mitch McConnell (Ky.), criticized both Obama and the previous administration of President George W. Bush for their handling of the auto industry.

"How many times do the taxpayers have to provide bailout money on the promise of reform?" McConnell asked in a statement. "We are now told these two companies are getting their last check from the taxpayers, and that if they don't finally come up with truly viable plans then they'll be forced into bankruptcy. Unfortunately, we've heard this before, from both this and the previous administrations."

The Obama administration "says these reforms must now be taken seriously or the taxpayer bailouts will end," the minority leader said. "While that should have happened tens of billions of dollars ago, we agree that it's time to get serious."

Sen. George V. Voinovich (R-Ohio), a strong supporter of the auto industry, said: "Although I am extremely disappointed that the administration believes GM and Chrysler did not go far enough in their viability plans, I give them credit for insisting that American auto companies receiving taxpayer dollars can stand on their own two feet eventually. However, this is long overdue."

The White House's insistence that Wagoner step down represented an extraordinary intervention of the federal government into the management of a private company. A senior administration official said Wagoner's resignation was required because the company needs a "clean sheet."

Before the federal government extends more financial aid to the U.S. automakers, the industry must offer a plan that makes it "much more lean, mean and competitive than it currently is," Obama said yesterday on CBS's "Face the Nation."

Wagoner's resignation also reflects the skepticism of Obama and his auto task force toward GM's restructuring plan, which was submitted last month to meet the terms of the $13.4 billion federal loan it has already received. Chrysler got $4 billion at that time. A "surgical" bankruptcy could be used to force the companies and their stakeholders to make concessions, administration officials said.

Overall, the task force has concluded that saving the nation's automakers will require more from the companies, their workers and their creditors. The new requirements will be tougher than those in the first federal aid package offered by the Bush administration, officials said.

In recognition of the damage that the declining U.S. auto industry is having on many of the nation's communities, the administration is creating a new initiative to revive them. Obama said today he is designating Edward Montgomery, a dean at the University of Maryland and a former deputy labor secretary, as "director of recovery for auto communities and workers," a new administration post.

Exactly how much more money the government will lend to the automakers is unknown.

The government is willing to pump more working capital into Chrysler over the 30 days, during which it is supposed to reach an agreement with Fiat. The government will lend another $6 billion to Chrysler if that agreement is reached. Under the terms of the ongoing negotiations between the two companies, Fiat would take a minority stake in Chrysler that is less than 35 percent, but which could grow to as much as 49 percent. The administration is not calling for Chrysler chief executive Robert L. Nardelli to resign, in part because he is negotiating the Fiat deal.

The amount that GM may borrow from the government will depend upon the government's ongoing review of the company, administration officials said.

Wagoner's resignation does not mean that he will leave the company immediately. He will continue to draw his $1 annual salary, because if he leaves the company he is entitled to a multimillion-dollar pension that the government does not want to pay, a source familiar with the matter said.

In a statement, GM announced today that Kent Kresa, a GM board member since 2003 and a former chairman of Northrop Grumman Corp., "has been named interim non-executive chairman of the board of directors." It said GM's current president and chief operating officer, Fritz Henderson, 50, will serve as chief executive.

The statement said only that Wagoner "is stepping down as chairman and CEO effective immediately."

"During the next 60 days, GM will address the tough issues to improve the long-term viability of the company, including the restructuring of the financial obligations to the bond holders, unions and other stakeholders," the company said. "Our strong preference is to complete this restructuring out of court. However, GM will take whatever steps are necessary to successfully restructure the company, which could include a court-supervised process."

Henderson pledged that over the 60-day period, "we will work around the clock, with all parties, to meet the aggressive requirements that have been set by the Task Force, and to make the fundamental and lasting changes necessary to reinvent GM for the long-term." He expressed confidence that "a stronger, healthier GM" will emerge despite "significant challenges ahead of us, and a very tight timeline."

Henderson said, "The administration has made it clear that it expects GM to expand and accelerate its restructuring efforts. I want the American people to know that we understand and accept this guidance. The road is tough, but the ultimate goal a leaner, stronger, viable GM is one we share."

Obama talk with Afghan president on new strategy in telephone

U.S. president Baracked Obama Thursday in telephone talk with Afghan counterpart Hamid Karzai said Washington has finished its strategy on the war on terror in Afghanistan, said a statement issued by Afghan presidential office.

The statement said Obama "gave information on the key points of the reviewed strategy of his country to the Afghan president and said the strategy will be announced soon."

However, it did not give any further information.

After reviewing the strategy of war on terror in Washington last month, the White House, according to U.S. media reports is expected to unveil a new strategy for fighting Taliban and al-Qaida insurgents this Friday.

Officials in Washington disclosed last week that the new plan for Afghanistan will include a new plan to move U.S. troops to front-line garrisons in remote areas of the country instead of the present method of staying in large rear area bases and venturing into remote areas from time to time, according to media reports.

Rise in home sales,stocks surge on bank plan

Wall Street is getting the good news it wants on the economy's biggest problems: banks and housing. Investors reignited a two-week rally Monday, cheering the government's plan to help banks remove bad assets from their books as well as a report showing a surprising increase in home sales. Major stock indicators jumped as much as 6 percent, including the Dow Jones industrial average, which soared more than 400 points.

The Treasury Department's bad asset cleanup program would tap money from the government's $700 billion financial rescue fund and involve help from the Federal Reserve, the Federal Deposit Insurance Corp. and the participation of private investors.

The government's announcement was what the market had waited weeks to hear. Treasury Secretary Timothy Geithner had announced an outline of the program last month but provided few details then about how it would work, leading to a poor reception in the markets.

Meanwhile, the housing report released Monday was overwhelmingly positive for the markets even though it showed a decline in home prices in February. Investors are embracing any sign that a glut in homes for sale may be easing.

The market had received another dose of housing good news last week on the troubled industry as housing starts for February came in much better than expected.

Collapsing home prices and the damage they have caused banks are at the center of the economy's current problems and are a major focus for the stock market. Banks have sharply curbed lending after becoming weighed down with loans that have gone bad, especially mortgages.

Investors had been largely disappointed in the government's efforts to date to restore the banks to health, but finally seemed encouraged by the long-awaited announcement Monday of details for the government's bad loan cleanup plan.

"The actions that we're getting from a policy standpoint are very helpful in removing the sand from the gears," said Alan Gayle, senior investment strategist at RidgeWorth Investments. "That is going to be good for the financials."

The plan seeks to draw in private investors, including big hedge funds, to participate by offering billions of dollars in low-interest loans to finance the purchases. The government will share the risks if the assets fall further in price.

Shares of the country's largest banks, which have been pounded in recent weeks over concerns about their ability to weather the crisis, soared on Monday. Citigroup Inc. jumped 17 percent, and Bank of America Corp. added 18 percent.

Even banks seen as being on better footing posted big advances. JPMorgan Chase & Co. rose 18 percent, while Wells Fargo & Co. rose 17 percent.

In late afternoon trading, the Dow rose 436.55, or 6 percent, to 7,714.93.

Broader stock indicators also surged. The Standard & Poor's 500 index rose 42.34, or 5.5 percent, to 810.88, crossing the psychological milepost of 800. The Nasdaq composite index rose 42.34, or 5.5 percent, to 1,531.94.

The Russell 2000 index of smaller companies rose 24.79, or 6.2 percent, to 424.90.

More than 10 stocks rose for every one that fell on the New York Stock Exchange, where volume came to a moderate 1.14 billion shares.

Monday's advance is bolstering an upbeat mood on Wall Street that has taken hold in the past two weeks. The Dow is coming off its first back-to-back weekly gains since May last year.

Stocks began rising sharply on March 10 after Citi and BofA told investors they had made money in the first two months of the year. Better-than-expected reports on retail sales and home building also lifted the market.

Jim Dunigan, executive vice president at PNC Wealth Management, said investors are more receptive to the government's plan to help banks and the economy because the latest version ropes in money from private investors.

Dunigan said the skeptical tone has blanketed Wall Street since the fall has eased since the market began its rally on March 10 after Citigroup surprised investors with an upbeat assessment of its business.

Investors welcomed the rise in home sales Monday even though the biggest jump in nearly six years came as first-time buyers pounced on deep discounts of foreclosures and other distressed properties. Analysts say it could be a nascent sign of recovery. But only weeks ago traders might have dwelled on the 15.5 percent drop in median prices.

"It's like putting on a different pair of glasses and you think you saw something different today than you saw yesterday," he said. "It's just hard to argue that there isn't an improvement in economic activity on the horizon."

Bond prices fell as stocks rose. The moves were moderate as investors remained mindful of the Federal Reserve's plan announced last week to buy government debt to help drive down borrowing costs by reducing interest rates.

The yield on the benchmark 10-year Treasury note, which moves opposite its price, rose to 2.66 percent from 2.64 percent late Friday. The yield on the three-month T-bill rose to 0.21 percent from 0.19 percent Friday.

Oil rose $1.73 to $53.80 a barrel and the dollar was mixed against other major currencies. Gold fell. The price of gold has risen in recent weeks as investors have worried about the faltering economy and a weaker dollar.

Homebuilders extended an early rise after the home sales report. KBR Inc. rose 65 cents, or 4.7 percent, to $14.48, while Toll Brothers Inc. rose $1.60, or 9.4 percent, to $18.60. Hovnanian Enterprises Inc. jumped 28 cents, or 24 percent, to $1.46.

Subodh Kumar, an independent investment strategist in Toronto, said the Fed's announcement that it would buy government debt and the details on plans to help banks are giving traders hope for recovery. Still, he remains cautious.

"The market is shedding some of its excess pessimism. That doesn't mean the market goes straight up," he said.

In corporate news, Daimler AG rose following the announcement that Abu Dhabi-based Aabar Investments PJSC would buy a stake in the automaker best known for its Mercedes-Benz brand. Daimler rose $1.41, or 5 percent, to $29.86.

Expectations are not only low for economic readings like home sales but for corporate earnings. That has made pessimistic traders more likely to jump on any kernel of good news.

Drugstore chain Walgreen Co. said Monday that its earnings fell 7 percent in the fiscal second quarter, while jewelry retailer Tiffany & Co. said its fourth-quarter profit plunged more than 75 percent. But Walgreen rose 10 percent and Tiffany rose 14 percent after results weren't as bad as feared.

Traders' relief indicates that better-than-expected numbers from other companies could help lift the market. For most companies March 31 is the end of their first quarter.

Dave Rovelli managing director of trading at brokerage Canaccord Adams, contends that Monday's jump represents more than so-called short covering that occurs when traders are forced to step into the market and buy to cover misplaced bets that stocks would fall.

"There is definitely new buying," he said. Rovelli said the approaching end of the quarter can make money managers eager to buy into a market.

Overseas, Britain's FTSE 100 rose 2.9 percent. Germany's DAX index rose 2.7 percent, and France's CAC-40 rose 2.8 percent. Japan's Nikkei stock average rose 3.4 percent.

India warns Obama on nuclear test ban treaty

India on Monday warned it would oppose the UN treaty banning nuclear tests, calling it disciminatory, despite President Barack Obama's hopes that the United States will ratify it.

Shyam Saran, India's special envoy on nuclear issues, conceded on a visit to Washington that the Comprehensive Nuclear Test Ban Treaty could prove to be a "contentious" issue with the new US administration.

The CTBT would ban all nuclear explosions for any purpose. It cannot come into effect as nuclear powers such as the United States and China have not ratified it or, in the case of India and rival Pakistan, even signed it.

Saran said India opposed the CTBT because it "was not explicitly linked to the goal of nuclear disarmament."

"For India, this was crucial since it was not acceptable to legitimize, in any way, a permanent division between nuclear weapons states and non-nuclear weapons states," he said at the Brookings Institution.

India declared itself a nuclear state in 1998, arguing it was unfair that international treaties only allowed five nations -- Britain, China, France, Russia and the United States -- to maintain the ultra-destructive weapons.

Former US president George W. Bush nonetheless reached a deal giving India access to civilian nuclear technology, triggering protests by some members of Obama's Democratic Party.

Obama in his campaign platform said he would encourage the US Senate to ratify the CTBT and encourage other nations to do so. The United States has not conducted a nuclear test since 1992.

Obama said he would work for the eventual abolition of nuclear weapons, heartening anti-nuclear activists including survivors of the world's only atomic attacks in the Japanese cities of Hiroshima and Nagasaki in 1945.

Saran said that if "the world moves categorically towards nuclear disarmament in a credible time-frame, the Indo-US differences over the CTBT would probably recede into the background."

In Mexico city State police commander killed

Mexico city- Gunmen have killed a state police commander in charge of investigating kidnappings and extortion in the western state of Michoacan.

Edgar Garcia was sitting at a red light in his car Sunday when two other vehicles pulled up and opened fire, the state government said in a communique late Sunday. He died at the scene.

State police in a nearby patrol car chased the suspects. One of the cars went out of control and crashed into a university building, according to the statement. A gunman got out of the car and began shooting at police, injuring one officer. Police then shot the gunman dead while his partner fled with apparent gunshot wounds.

The suspects in a second car also got away.

At the same time across town, gunmen opened fire on another patrol car, injuring one officer. The statement said they then fled, stealing several other cars at gunpoint make it harder for police to follow them.

Also Sunday, in Acapulco, officials reported finding a man buried in shallow grave. It was unclear how he died.

Last week in the same resort city, authorities uncovered the bodies of four young men who appeared to have been bound and hacked to death with machetes and buried in another shallow grave.

West must respect Afghan wishes says Manouchehr Mottaki

Iranian Foreign Minister Manouchehr Mottaki urges the West to respect the will of Afghans if it intends to resolve Afghanistan's challenges.

"Meetings which are scheduled to be held in Rome and The Hague must pay serious attention to the true challenges of Afghanistan, they must respect the will of the Afghan people and respect its traditions," Mottaki said Monday.

Mottaki's remarks came ahead of a March 31 conference that will be held in The Hague on Afghanistan. Another conference of foreign ministers will be held on Afghanistan on the sidelines of a meeting of the Group of Eight industrialized nations (G8) to be held in Trieste in June.

"After seven years, the international community and the West in particular have understood that the military option in Afghanistan has borne no fruit," said the Iranian minister.

"It has been proven that taking the will and dignity of the Afghan people into account will bring about results," he added.

Earlier in March, Iranian Foreign Ministry spokesman Hassan Qashqavi signaled Iran's willingness to help the Group of Eight industrialized nations in establishing peace and security in Afghanistan and securing the country's economic and social growth.

A US-led coalition invaded Afghanistan in 2001 to punish those responsible for carrying out the 9/11 attacks on US soil and to end the rule of the Taliban in the country.

Seven years later, rising violence in the war-ravaged country has forced the new US administration to seek an end to the war.

US President Barack Obama said on Sunday that the new policy for Afghanistan would focus on "an exit strategy" even as the fight against Taliban expands.

He suggested that the military build-up in Afghanistan would not be open-ended and that a way out of the war would require a diplomatic and economic front against insurgency.

Republicans Not Shared White House Optimism

A top economic advisor to President Obama said on Sunday that she was confident that the economy would begin to rebound this year, a message starkly contradicted by Republican leaders who expressed doubts about the growing deficit.

I think we are absolutely taking the right policies,” said Christina D. Romer, chairwoman of the White House Council of Economic Advisers, during an appearance on CNN’s “State of the Union,” one of two stops she made on the talk-show circuit. “I have every expectation, as do private forecasters, that we will bottom out this year and actually be growing again by next year.”

Asked on “Fox News Sunday” how confident she is that a year from now Obama administration policies would be succeeding, she replied: “Incredibly confident.”

“We absolutely think that they are going to do the job for the American economy,” Ms. Romer added.

That optimism was not met by Senator Judd Gregg of New Hampshire, the senior Republican on the Senate Budget Committee, and Senator Richard Shelby of Alabama, top Republican on the Senate Banking Committee. They cited new estimates released Friday by the Congressional Budget Office that calculated that the White House’s tax and spending plans would create deficits totaling $2.3 trillion more than the president’s budget projected for the next decade.

“The practical implications of this is bankruptcy for the United States,” said Mr. Gregg, who also appeared on CNN. “There’s no other way around it. If we maintain the proposals which are in this budget over the 10-year period the budget covers, this country will go bankrupt. People will not buy our debt; our dollar will become devalued.

“It is a very severe situation. And I find it almost unconscionable that this administration is essentially saying, well, we’re just going to blithely go along on this course of action after they’re getting these numbers.”

Mr. Shelby, speaking on “Fox News Sunday,” said Mr. Obama was going to have to scale back his budget in light of the new estimates: “He’s going to have to. We’re on a — on the fast road to financial destruction, and I see a 20 billion — a $20 trillion deficit in the few years to come,” he said.

Maine Senator Susan Collins, one of the few Republicans to support President Obama’s stimulus package, said she could not back his budget plan, which she said would bring debt to an unprecedented level. “It poses a threat to the basic health of our economy,” she said on ABC’s “This Week.”

Ms. Romer challenged the estimates, calling the figures unrealistically pessimistic.

“There is a question whether the C.B.O. is right,” Ms. Romer said. “So we know that forecasts, both of what the economy is going to do and of what the budget deficit are going to do, are highly uncertain. And especially when you get further out in the C.B.O. numbers, we think they really are too pessimistic in thinking about how fast the U.S. economy can grow.”

Kent Conrad, chairman of the Senate Budget Committee, said the different estimates could be explained. “In fairness to this administration, they locked down their forecasts three months ago,” said Mr. Conrad, a Democrat of North Dakota. “There’s been a lot of bad news since.”

But he added: “We have got to get back to a more sustainable fiscal circumstance. We cannot have debt pile on top of debt. We cannot run budget deficits in the out-years of over $1 trillion a year.

“I will present a budget that I think begins to move in that direction,” Mr. Conrad said. “It acknowledges in the short term, yes, we have got to have added deficits and debt to give lift to this economy, but longer term, we have got to pivot.”

The state of the economy once again dominated the talk shows on Sunday, the day before the administration plans to unveil its toxic-asset plan. Ms. Romer stressed that the private investors entering a partnership with the government to buy assets of trouble companies would not be subject to the same scrutiny now being leveled at American International Group. In response to the $165 million in bonuses that A.I.G. dispensed to the business unit that caused its near-collapse, the House moved to impose a 90 percent tax on bonuses given out at companies receiving more than $5 billion in bailout money.

“What we’re talking about now are private firms that are kind of doing us a favor,” Ms. Romer said on Fox, “right, coming into this market to help us buy these toxic assets off banks’ balance sheets. And I think they understand that the president realizes they’re in a different category, and I think they are going to have confidence that they’re going to be able to come into this — into this program.”

The job security of Treasury Secretary Timothy F. Geithner was another topic of conversation on Sunday, with both Democrats and Republicans saying that they favored giving him more time.

“In the area of trying to stabilize the financial sector of our economy, they’re doing the right things,” Mr. Gregg said. “They haven’t done it as definitively as they should have, clearly. We would have liked a plan that was more definitive earlier, but they are moving in the right direction, and the Fed is moving in the right direction,” he said.

“I don’t think anybody after two months has been tested enough that I would say he should resign,” Senator Charles E. Grassley, Republican of Iowa, said on CBS’s “Face the Nation.”

Other leaders backing Mr. Geithner included New York Mayor Michael R. Bloomberg and California Gov. Arnold Schwarzenegger. President Obama reiterated his support for Mr. Geithner during an interview with “60 Minutes” to air Sunday evening.

One exception was Mr. Shelby, who said his confidence is waning daily. “I think he’s probably on shaky grounds now, at least with the Congress and a lot of the American people,” he added.

Ms. Romer dismissed talk of a resignation as “really silly.”

“Tim Geithner is an excellent secretary of the treasury,” she said.

Pakistan judge back at work

The Pakistani chief justice whose ouster spurred waves of protests that led to a president's downfall returned to work Sunday, while the ruling party and opposition resolved to cooperate despite their own clash over his reinstatement.

Any reconciliation among the major political factions could spell relief for U.S. and other Western officials who want the nuclear-armed country to focus on eradicating al-Qaida and Taliban fighters nested along its border with Afghanistan.

However, a leadership dispute in Pakistan's most powerful province could still yield partisan wrangling — and more distraction.

Hundreds of lawyers and activists who agitated for former Chief Justice Iftikhar Mohammed Chaudhry's reinstatement gathered outside his home for a ceremonial flag-raising Sunday morning. They carried balloons and threw rose petals, calling his return a milestone for democracy.

"It is a day of victory for the people of Pakistan," lawyer leader Aitzaz Ahsan said.

Chaudhry formally returned to office after midnight following the Saturday retirement of the chief justice who had replaced him.

Former President Pervez Musharraf removed Chaudhry in 2007 after the independent-minded judge began examining cases that could have embarrassed the military ruler and threatened his claim to office.

The justice's ouster sparked a wave of lawyer-led protests that pressured Musharraf to allow elections which brought his foes to power in early 2008. Musharraf resigned last summer.

His successor, Asif Ali Zardari, promised to reinstate the chief justice but kept stalling, apparently over fears that Chaudhry would examine a deal with Musharraf that granted Zardari immunity from prosecution over corruption allegations.

Former Prime Minister Nawaz Sharif, head of the second-biggest party, joined the opposition because of Zardari's failure to reinstate Chaudhry. Zardari gave in last week and restored the chief justice after activist lawyers and opposition supporters began a march toward the capital, where they planned to stage a sit-in at Parliament.

U.S. envoys, intent on convincing Pakistan to stay focused on fighting Islamist extremism, met with the president and prime minister ahead of the decision to reinstate Chaudhry.

Sharif was further angered after a Supreme Court ruling last month barred him and his brother Shahbaz from holding elected office.

After the ruling, Zardari dismissed the Punjab provincial government headed by Shahbaz, putting the regional governor in charge in what the Sharifs said was a blatant power grab.

The various political parties are now jockeying for position to form a new coalition to run Punjab. An alliance between Sharif and Zardari's party — as there was in Punjab before the court decision — remains a possibility.

Punjab is Pakistan's wealthiest, most populous and most powerful province, and losing influence there could hamper Zardari's party on the national front. Sharif's party dominates the Punjab assembly, though it lacks an outright majority.

Prime Minister Yousuf Raza Gilani said he hoped for a quick end to the governor's rule in Punjab, and added that reconciliation between the two parties was critical in helping Pakistan focus on major challenges such as militancy and its faltering economy.

The government already has appealed to the Supreme Court to review the judgment against the Sharif brothers.

"We came with an olive branch and a message from President Zardari to let's join hands again to serve the nation," Gilani said after meeting with Sharif on Sunday.

Sharif said he had no personal enmity with Zardari and pledged to be a supportive opposition force. However, he reiterated that his party wanted additional reforms that both parties had previously agreed to, including a reduction in the powers of the presidency.

"We will cooperate as much as we can," Sharif said.

Obama wants priorities passed on budget

President Barack Obama demanded Saturday that any budget passed by Congress must cut the deficit, overhaul health care, invest in education and reduce U.S. dependence on foreign oil.

After a week dominated by outrage over enormous corporate bonuses at bailed-out companies, Obama used his weekly radio and Internet address to turn the focus back on his budget proposal and getting it through Congress.

But even as he outlined his four major requirements for a spending plan that would top $3.6 trillion, there was growing unease on Capitol Hill over a budget that congressional auditors say will generate $9.3 trillion in red ink over the next decade.

"I realize there are those who say these plans are too ambitious to enact," Obama said. "To that I say that the challenges we face are too large to ignore. I didn't come here to pass on our problems to the next president or the next generation — I came here to solve them."

Republicans, however, slammed Obama's budget as a breathtaking spending spree. As states and families are struggling to cut spending, the president's budget "spends too much, taxes too much and borrows too much," said Gov. Haley Barbour of Mississippi, in the weekly Republican address.

Obama spent two days in California this week taking his sales pitch directly to the people. The campaign took him from town-hall meetings to Jay Leno's "The Tonight Show" set in an effort to garner support for a budget that will pay for his priorities. At the same time, he is promising to cut the deficit in half by the end of his four-year term.

His message, however, was drowned out for much of the week by revelations that American International Group Inc. paid out $165 million in bonuses to employees, including to traders in the financial unit that nearly caused the insurance giant's collapse. The public outrage was followed by congressional efforts to impose punitive taxes on those payouts.

In his Saturday message, Obama contended that ordinary Americans are more concerned about having a paycheck and being able to pay their college or medical bills more than they are about "the news of the day in Washington."

And those are the concerns, he said, that he addresses in his budget, calling it an economic blueprint for the future. It is, he said, "a vision of America where growth is not based on real estate bubbles or over-leveraged banks, but on a firm foundation of investments in energy, education and health care that will lead to a real and lasting prosperity."

With a nod to Capitol Hill, he said the specific dollar amounts in his budget plan will likely change, but in the end his four priorities must be met.

Those are plans to boost investments in clean energy technologies, including wind and solar power; increased funding for childhood education programs, affordable college costs and higher standards for schools; health care reform that will lower costs, including Medicare and Medicaid; and a scrutiny on domestic spending that will lead to cuts in the deficit.

"The American people sent us here to get things done, and at this moment of great challenge, they are watching and waiting for us to lead," Obama said. "Let's show them that we are equal to the task before us."

In Australia Emirates jet makes emergency landing

An Emirates jetliner carrying more than 225 people slammed its tail into the runway as it took off from Australia, sending smoke into the cabin and forcing the pilot to make an emergency landing, officials said Saturday.

No one was hurt, but passengers described being terrified after learning something was wrong soon after the Airbus A340 took off from the southern city of Melbourne about 10:30 p.m. Friday, bound for Dubai.

After the strike, which reportedly left debris strewn on the runway and knocked out some runway lights, the pilot flew over the sea, dumping fuel, before returning to the airport and landing without incident.

"We did land successfully, thankfully, and the plane was surrounded by paramedics and fire engines," passenger Catherine Edmunds told the Australian Broadcasting Corp. "It was terrifying. I'd hate to go through it again."

The ABC said crew noticed smoke in the cabin during the roughly 45 minutes the plane was in the air.

The Dubai-based airline said in a statement that a safety inspection team was being rushed to Melbourne to investigate the incident, and that it regretted any inconvenience caused to passengers.

Australian aviation authorities were also investigating.

"We will be looking at the flight data records, getting data off that, interviewing the crew, interviewing the company representatives, inspecting the runway and aircraft," Australian Transport Safety Bureau spokesman Ian Brokenshire said.

He said such incidents where known in the industry as "tail hits" and were caused by a number of factors such as the angle of takeoff, weather conditions and loading issues.

"It is a hazard, particularly on the longer aircraft," he said.

The passengers were put on other flights to Dubai.

over Kashmir India accuses Pakistan exchange

India says Pakistani troops in Kashmir fired "indiscriminately" at Indian positions Friday night.

Indian officials describe the incident on Saturday as the first major violation this year of the more than five-year cease-fire along the Line of Control, the border between both countries in the disputed territory of Kashmir.

"Pakistani troops resorted to unprovoked firing on our positions in the Uri sector of the Line of Control for four hours last night, causing injury to a trooper.

"They fired indiscriminately, using small and automatic weapons at our positions in the Uri sector. Our troops had to respond to the unprovoked firing from the Pakistani positions," Lt. Col. J.S. Brar, Indian defense spokesman, told.

A Pakistani response was not immediately available.

Indian defense sources in Kashmir said the firing was "apparently intended to give a cover" to militants infiltrating the Line of Control.

India has been accusing neighboring, nuclear-armed Pakistan of "arming and abetting" the infiltrators, a charge denied by Pakistan.

The two countries have gone to war over Kashmir twice, and came close to another war during the Kargil crisis in 1999.

Relations between the two south Asian nations have seen a thaw and a positive journey after a bilateral cease-fire on the Line of Control in November 2003. But relations suddenly slumped in the aftermath of the Mumbai terror strikes in November.

Analysts think the exchange of fire between the two armies may lead to further tensions between the two countries.

Over more than five years, several Kashmir-related confidence building measures were put in place, including a bus service that crosses the Line of Control, and trade initiatives that didn't take off as intended.

Also Saturday, the defense spokesman said four militants were killed by the Indian army in two separate encounters in north Kashmir.

Kashmir has been in the throes of a violent separatist campaign for nearly 20 years. Authorities say 43,000 people have been killed, but nongovernmental organizations and human rights groups put the number of dead at twice the official count.

In Afghanistan Five NATO soldiers die on same day

The NATO-led force in Afghanistan said Saturday that a foreign soldier had been killed in action in the south of the country the day before, the same day that four Canadian troops died in attacks.

The five soldiers were killed on Friday, when clashes and attacks across the country left nearly 40 people dead, 19 of them policemen, as the insurgency led by the extremist Taliban militia rages on.

The NATO-led International Security Assistance Force said in a statement that the soldier was killed in a "hostile incident" on Friday. It did not release the nationality of the troop, leaving that task to the home nation.

The Canadian military announced in Ottawa on Friday that four of its soldiers and an Afghan interpreter were killed and nine others were injured in two separate explosions in southern Kandahar province, a Taliban stronghold.

"Please do not think of these incidents as a failure on the part of any person of the mission itself," Brigadier General Jon Vance, the Canadian commander in Kandahar, said in a nationally televised address from Afghanistan.

Canada has 2,800 troops deployed in Afghanistan as part of ISAF, which has swollen to reach nearly 62,000 soldiers from 42 nations, according to alliance figures.

Most of the Canadian troops are in the dangerous south, where Australia, Britain, Denmark, the Netherlands and the United States have also deployed forces.

The latest casualties on one of the bloodiest days yet for ISAF took to 71 the number of international soldiers to die in Afghanistan this year.

About 40 have died in Iraq so far this year, according to the site.

Around 294 international troops died in Afghanistan last year, most of them in attacks.

Obama overture Iran's Khamenei rebuffs

Iran's most powerful figure today dismissed President Obama's extraordinary Persian New Year gesture, insisting that the U.S. administration's actions must match its rhetoric before Iran would alter its foreign policy stances.

Supreme leader Ali Khamenei, who is Iran's highest spiritual, military and political authority, told supporters in his hometown of Mashhad today that "changes in words" won't be enough to convince Iran that the Obama administration is sincere in its outlook.

We do not have any record of the new U.S. president," he said in a live television broadcast. "We are observing, watching and judging. If you change, we will also change our behavior. If you do not change, we will be the same nation as 30 years ago."

The crowd chanted, "God is great! Khamenei is the leader!"

As he spoke, Khamenei glanced cursorily at his notes, suggesting his words were carefully considered. His remarks were the most detailed and authoritative response by any Iranian leader to several attempts by the Obama administration to reach out to the Islamic Republic.

Obama early Friday morning issued a 3 1/2 -minute videotape congratulating Iranian people and officials on the occasion of the important holiday, acknowledging 30 years of strained relations and offering a new beginning.

Iranian officials quickly responded by welcoming the address but voicing skepticism about its sincerity. Khamenei today recited a list of alleged U.S. wrongdoings over the last three decades, including the 1988 downing of an Iranian civilian plane by a U.S. warship in the Persian Gulf, the freezing of Iranian assets, and strong support for Israel and armed Iranian opposition groups.

"They are talking of extending a hand to Iran on the occasion of the New Year and they are congratulating the Iranian people," he said. "At the same time, they are accusing [Iran] of terrorism and the manufacturing of nuclear weapons."

Washington and Iran went separate ways after a 1979 revolution that overthrew the American-backed monarchy Shah Mohammed Reza Pahlavi and established the Islamic Republic. That same year, radical Iranian students seized the U.S. Embassy in Tehran and held American employees hostage for 444 days, poisoning relations between the two former allies.

Khamenei listed a lifting economic sanctions and a retraction of "hostile propaganda" as examples of welcomed shifts in U.S. policies.

"For you to say that we will both talk to Iran and simultaneously exert pressure on her, both threats and appeasement, our nation hates this approach," he said.

Obama has said he is committed to improving America's image abroad after what most analysts consider a sullying of the U.S. reputation following the U.S.-led invasion of Iraq and abuses of detainees in the Abu Ghraib and Guantanamo Bay prisons.

To improve America's standing abroad, Khamenei advised Obama, "avoid an arrogant tone, avoid arrogant behavior, avoid bullying behavior, do not interfere in nations' affairs, be contented with your own share, do not define interests extraterritorially all over the world."

He urged Obama to get his words translated, but suggested he not use "Zionist" translators, drawing laughter from the audience.