Iraqi forces shot down an unmanned U.S. spy plane on Monday and Baghdad blasted what it called the mad campaign of "little Bush" as the two sides toughened their positions ahead of a possible war.
The Pentagon said the Predator plane was fired on by an Iraqi aircraft in the southern no-fly zone of Iraq in the first downing of a U.S. aircraft in a no-fly zone since a new U.N. resolution was passed last month demanding Baghdad disarms.
U.S. Joint Chiefs of Staff Chairman General Richard Myers told reporters in Washington he did not view the incident, which was confirmed by the Iraqi military, as an escalation of the dispute with Iraq.
But in signs the markets believe war is increasingly likely, oil prices have climbed to near three-month highs. Gold, seen as a safe store of value in troubled times, headed higher also, boosted by a weaker dollar.
In Iraq, U.N. nuclear experts were getting ready to interview Iraqi scientists about suspected chemical, biological and nuclear weapons as their hunt for such weapons of mass destruction continued.
An Iraqi military spokesman said the Predator, flying from a base in Kuwait, breached Iraqi airspace while on a spy mission.
"With God's help, and with the will of the men of our heroic air defense forces and brave sky eagles, it was shot down in a delicate and planned operation," his statement said.
Myers said the shooting was in keeping with previous Iraqi hostility toward international coalition aircraft.
"I do not see it as an escalation," he said.
Iraq, which does not recognize the southern or northern no-fly zones set up after the 1991 Gulf War, says Western airplanes have attacked civilian targets and killed innocent people. The Pentagon denies that.
U.S. military Central Command spokesman Navy Commander Dan Gage said Iraq had fired on coalition aircraft on 32 days since the U.N. resolution was passed on November 8. U.S. and British warplanes attacked Iraqi air defenses in the no-fly zones at least five times in the past week.
Keeping up the onslaught of rhetoric between Baghdad and Washington, the ruling Baath Party newspaper al-Thawra wrote in a front-page editorial directed at President Bush: "The administration of little Bush is launching a mad campaign based on lies and accusations."
His father George Bush led the first U.S. campaign against Iraq as president in 1991. In Washington on Sunday, a U.S. official said the drive to rid Iraqi President Saddam Hussein of weapons of mass destruction was entering a final phase.
Later, Iraqi state television said Saddam had urged Iraqi ambassadors based abroad to "respond to enemy propaganda and the methods of lying and deception that the evil enemies are adopting against steadfast Iraq and the glorious Arab nation."
The Iraqi leader, in a meeting with the ambassadors in Baghdad, said they had to "reveal the foul intentions of the American administration and its evil aims in the Arab Gulf region," the television said, showing footage of the meeting.
Saddam and his officials said on Sunday Iraq was doing all it could to cooperate with the United Nations, which has scores of inspectors scouring the country for evidence of nuclear, chemical or biological weapons.
Iraq insists it has no secret weapons and challenged Washington to send in CIA agents to prove otherwise.
U.S. officials dismissed that offer on Monday, saying Iraq had no say in the inspections process.
"The burden of proof is on Iraq to give verifiable evidence that they've eliminated their weapons of mass destruction," a senior U.S. official said. Iraq should focus on cooperating with inspectors, he added.
The United States and Britain have made no secret of their preparations for war to back up demands that Saddam come clean.
Their verbal battles with Iraq have been fueled by leaked media reports of a predicted ground war victory in two days and of plans for a joint seaborne invasion on Iraq, a country that has hardly any coast.
And Israel this week stepped up preparations for a possible U.S.-led military campaign against Iraq after Washington declared it was entering the "final phase" in forcing Saddam to disarm.
The Vienna-based U.N. International Atomic Energy Agency said on Monday it has begun the process of interviewing Iraqi scientists they had identified after talking to technicians during inspections at several suspect Iraqi sites.
"We understand to a large extent where all the old scientists were and who all the new scientists are, so the interviews are conducted more efficiently," an IAEA spokesman told Reuters in Vienna.
But a spokesman for the U.N. inspectors in Baghdad said the arms experts had not yet interviewed Iraqi scientists formally. Asked if they had interviewed anyone privately so far, he said: "Not in the formal sense of the word, (not) in a secluded way.
"It is not a simple matter. It involves a number of factors that have to be sorted out," he told a news conference.
IAEA director-general Mohamed ElBaradei told CNN his agency was also making provisions to conduct interviews outside Iraq if necessary.
Last month's U.N. Security Council resolution allows weapons inspectors to facilitate the travel of those interviewed and their family outside Iraq. But Iraqis fear retribution by the authorities against their wider families.
One of at least five sites visited by U.N. experts on Monday was a closed baby milk plant where the facility chief told reporters later: "It was an ordinary visit and we answered all their questions."
The factory was flattened by the Western allies in the first Gulf War who said it was a secret chemical weapons plant. The factory was rebuilt but the Iraqis say it was closed three years ago due to the cost of producing milk compared to importing it.