"In theory we stand together in not rewarding kidnappers, but in practice it seems some administrations have parted with cash and so it puts other foreign nationals at risk from gangs who are confident that some governments do pay," one senior envoy in the Iraqi capital was quoted as saying.

Several other governments, including Jordan, Romania, Sweden and Turkey, were also said to have paid for their hostages to be freed, along with some US companies with lucrative reconstruction contracts in Iraq.

While Britain has never paid to free its citizens, it is understood to have paid intermediaries 'expenses' for their efforts to make contact with the kidnappers, The Times reported.

France, Italy and Germany have all publicly denied paying any ransom money. "But according to the documents, held by security officials in Baghdad who have played a crucial role in hostage negotiations, sums from 2.5 million dollars to 10 million dollars per person have been paid over the past 21 months," the paper said.

According to the report, France paid out a combined 25 million dollars for the release of Georges Malbrunot in December 2004 and Florence Aubenas in June 2005.

Italy handed over a total of 11 million dollars for the freedom of Simona Pari, Simona Torretta and Giuliana Sgrena in 2004 and 2005, again according to the report, while Germany was said to have given kidnappers eight million dollars to secure the release of three hostages, including Rene Braeunlich and Thomas Nitzschke who were freed earlier this month.

The Italian daily Repubblica cited an official report according to which Rome handed over several million dollars in ransom for Iraq hostages.

Germany's national broadcaster, ARD, earlier reported that a 10-million-dollar ransom had been paid out for Braeunlich and Nitzschke, a claim the government in Berlin has consistently denied.

Britain paid out no money to the kidnappers of Britons Kenneth Bigley and Margaret Hassan, both of whom were killed after being seized in late 2004, but the authorities here were criticised for allowing the kidnappers of fellow Briton Norman Kember to flee before launching a rescue operation in March.

Blair is believed to be ready to quit around the time of Labour's 2007 party conference and make way for Gordon Brown as his successor, provided the chancellor is loyal and backs his agenda until then.

This weekend it appeared that Blair and Brown had reached a truce after three months of warring between the two camps.

Peace talks about a stable and orderly transition of power are under way, with "honest brokers" Lords Soley and Kinnock being influential in the process.

Blair and President George W Bush will announce that they are to begin withdrawing troops from Iraq at a summit in Washington being planned for this week to welcome the formation of a new Iraqi government.

The process has been carefully choreographed in an attempt to bolster the popularity of both leaders, which has been dragged down by the war.

The phased withdrawal will see British troop numbers cut by several thousand and American forces by up to 30,000 by the end of the year, according to a senior defence source.

The move will be described as a "transition" to Iraqi control in deference to the new government of prime minister Nouri al-Maliki, the first fully-fledged democratic government of Iraq.

He is expected to call for the calmest provinces to be handed over to Iraqi security forces as one of his first acts as leader of a government of national unity.

The word "withdrawal" will not be mentioned to avoid the appearance that the allies are being forced out by rising insurgent attacks on their forces.

"We agreed to do this when the new government is in place so that it is their plan, not our plan," said a senior British official.

Meanwhile, No 10 is drawing up plans to scale down British troops in Northern Ireland. In 1994, at the time of the IRA ceasefire, the number of soldiers was 12,700; they have since been scaled back to 9,300. The plan is to reduce them to 5,000 by July next year and then further if the assembly is restored after talks between Sinn Fein and Ian Paisley's Democratic Unionists.

The Bush-Blair summit has been on hold, waiting for the new Iraqi government to be sworn in, but officials are on standby to call it at 48 hours' notice. Both leaders could do with a "love-in" combined with some good news on Iraq to boost their poll ratings, a British source said.

Yesterday the Iraqi parliament approved the country's new national unity government, including members of the main Shi'ite, Kurd and Sunni parties. The move was hailed in London and Washington as a milestone which it is hoped will reduce widespread violence.

Three crucial ministries - national security, interior and defence - have still not been agreed. Even as the legislators met, at least 27 people were killed and 68 wounded in a series of attacks. Yesterday a roadside bomb attack in Basra, in southern Iraq, wounded two British soldiers. Their injuries are not believed to be serious.

Lieutenant-General Sir Robert Fry, the British deputy commander of the coalition, said last week that the new government would be "extremely keen" to see coalition forces starting to withdraw "in order that it can demonstrate its own sovereignty".

In Baquba, with a population of 350,000, gunmen last week ordered people off a bus, separated the men from the women and shot dead 11 of them. Not far away police found the mutilated body of a kidnapped six-year-old boy for whom a ransom had already been paid.

The sectarian warfare in Baghdad is sparsely reported but the provinces around the capital are now so dangerous for reporters that they seldom, if ever, go there, except as embeds with US troops. Two months ago in Mosul, I met an Iraqi army captain from Diyala who said Sunni and Shia were slaughtering each other in his home province. "Whoever is in a minority runs," he said. "If forces are more equal they fight it out."

It was impossible to travel to Baquba, the capital of Diyala, from Baghdad without extreme danger of being killed on the road. But I thought that if I took the road from Kurdistan leading south, kept close to the Iranian border and stayed in Kurdish-controlled territory I could reach Khanaqin, a town of 75,000 people in eastern Diyala. If what the army captain said about the killings and mass flight was true then there were bound to be refugees who had reached there.

I thought it was too dangerous to go beyond the town into the Arab part of Diyala province, once famous for its fruit, since it is largely under insurgent control. But, as I had hoped, it was possible to talk to Kurds who had sought refuge in Khanaqin over the past month.

Salam Hussein Rostam, a police lieutenant in charge of registering and investigating people arriving in terror from all over Iraq, gestured to an enormous file of paper beside him. "I've received 200 families recently, most of them in the last week," he said. This means that about one thousand people have sought refuge in one small town. Lt Rostam said that the refugees were coming from all over Iraq. In some cases they had left not because they were threatened with death but because they were fired from their jobs for belonging to the wrong community. "I know of two health workers from Baghdad who were sacked simply because they were Kurds and not Shia," he said.

This was probably because the Health Ministry in Baghdad is controlled by the party of Muqtada al-Sadr, the Shia cleric.

The flight of the middle class started about six months after the invasion in 2003 as it became clear Iraq was becoming more, not less, violent. They moved to Jordan, Syria and Egypt. The suicide bombing campaign was largely directed against Shias who only began to retaliate after they had taken over the government in May last year. Interior Ministry forces arrested, tortured and killed Sunnis.

But a decisive step towards sectarian civil war took place when the Shia Al-Askari shrine in Samarra was blown up on 22 February this year. Some 1,300 Sunni were killed in retaliation.

Kadm Darwish Ali, a policeman from Baquba and now also a refugee, said: "Everything got worse after Samarra. I had been threatened with death before but now I felt every time I appeared in the street I was likely to die."

Every community has its atrocity stories. The cousin of a friend was a Sunni Arab who worked in the wholly Shia district of Qadamiyah in west Baghdad. One day last month he disappeared. Three days later his body was discovered on a rubbish dump in another Shia district. "His face was so badly mutilated," said my friend, that "we only knew it was him from a wart on his arm."

Since the destruction of the mosque in Samarra sectarian warfare has broken out in every Iraqi city where there is a mixed population. In many cases the minority is too small to stand and fight. Sunnis have been fleeing Basra after a series of killings. Christians are being eliminated in Mosul in the north. Shias are being killed or driven out of cities and towns north of Baghdad such as Baquba or Samarra itself.

Dujail, 40 miles north of Baghdad, is the Shia village where Saddam Hussein carrying out a judicial massacre, killing 148 people after an attempt to assassinate him in 1982. He is on trial for the killings. The villagers are now paying a terrible price for giving evidence at his trial.

In the past few months Sunni insurgents have been stopping them at an improvised checkpoint on the road to Baghdad. Masked gunmen glance at their identity cards and if under place of birth is written "Dujail" they kill them. So far 20 villagers have been murdered and 20 have disappeared.

Bush said he had spoken Sunday by telephone with Iraq's president, Jalal Talabani, new prime minister, Nuri al-Maliki, and parliament speaker, Mahmud Mashhadani, to congratulate them on forming a new "unity government" Saturday.

But, speaking a day after a new government was sworn-in in Baghdad without naming the ministers of defense, interior and national security, US Secretary of State
Condoleezza Rice said that sectarian violence remains "a major problem" for the war-torn state.

She also warned the United States may not be able to draw down its 130,000 troops deployed in Iraq soon.

"It is premature before we've even had this discussion with the Iraqi government to start giving firm commitments on what the drawdown will look like," she said on Fox News Sunday.

Maliki's inability to fill the key portfolios in his new cabinet remains a challenge to the new Iraqi government's ability to address the ongoing violence across the country, but Bush remained upbeat Sunday.

"I assured them that the United States will continue to assist the Iraqis in the formation of a free country," Bush said of his telephone conversations with Iraq's new leadership.

As persistent wrangling between Shiite, Sunni and Kurdish politicians have forced further negotiations on the unfilled posts, unrest continued in Iraq Sunday with at least 20 people killed, 13 of them in a Baghdad restaurant bombing.

Another 18 people were wounded when the blast ripped through a crowded diner in the upmarket Karrada district, highlighting the importance of Maliki's plans for a special security force for the capital.

The US ambassador to Baghdad, Zalmay Khalilzad, said shortly after meeting Maliki Sunday that choosing leaders for key ministries would take "a few more days".

"Those ministries should be occupied by people who are unifiers ... not people with ties to militias; people who are broadly accepted by the Iraqis," Khalilzad told CNN.

Maliki told him that "he is interviewing people and he's consulting with others, and that he anticipates that it'll be done in a week," Khalilzad said.

"We really need to give this government a chance, and we need to recognize that with the very difficult things that they are trying to do, they are making extraordinary progress," Rice told Fox News Sunday.

Rice praised Maliki as demonstrating focus and resolve in his job.

"This is a strong leader. I've met him. I've looked into his eyes. This is somebody who is determined to do what is right for the Iraqi people."

Asked about media reports claiming that sectarian violence has left several thousand Iraqis dead so far this year, Rice acknowledged "It's a major problem for Iraq. There's no doubt about it."

She insisted that in recent meetings in Iraq with Maliki, "he focused on the need to re-establish confidence with the police, to re-establish confidence in the ability of the government to deal with this (violence)."

"I note that Prime Minister Maliki said in comments even today that he's determined to use the maximum force to stop the terrorism and the violence against the Iraqi people."

Khalilzad said Maliki already intends to review the Baghdad security plan, but that stopping the independent militia behind much of the violence could take years.

"What is needed is there has to be a plan developed for decommissioning and demobilizing and reintegrating militia forces -- mostly into society, but some perhaps into security forces as well," he said.

The former top US diplomat welcomed the formation on Saturday of the first permanent government in Iraq since the ousting of Saddam Hussein, but reiterated her deep concerns about the volatile situation.

"The main problems that I see are the unintended consequences of this war, the biggest one frankly being at the moment is that the country that gained the most out of this war is Iran so I am very worried about it," she said Sunday.

Albright, who served under former president
Bill Clinton between 1997 and 2001, highlighted the dangers of an internal conflict between Iraq's Shiite Muslim majority and the Sunni minority.

Asked what she thought about the risk of the country being divided into three parts -- the Kurdish north, the Sunni-dominated centre and the Shiite south -- Albright said this would be a dangerous development.

"It would have deep implications obviously on Turkey and the Kurdish issue. It would give additional power to Iran in the south with the Shia. Then the centre, which is primarily Sunni, is not homogeneous either, and one is unclear as to what role the Saudis might play or Jordanians," she said.

"I think it is better to keep it (Iraq) together, with some understanding that there needs to be local autonomy with some central control and distribution of oil revenues."

Albright, 69, has written a book about religion and politics in which she says the March 2003 Iraq invasion may turn out to be the greatest disaster in US foreign policy.

Khalil objected at the start of the hearing to her ejection from court in a previous session. After the argument with Abdul Rahman rose in pitch, he ordered her removed from court and described her behavior as "an insult to justice."

Proceedings in the heavily-guarded courtroom in Baghdad's Green Zone, which have seen occasional such ejections in the past, then moved ahead with two witnesses speaking in favor of Baathist judge Awad-al Bandar.

Following testimony last week for the four local officials on trial with Saddam, Bandar was the first of the four senior Baath party figures on trial to present defense witnesses.

One man, speaking openly without the protection of a screen used by many other witnesses, praised Bandar's running of the Revolutionary Court that sentenced 148 Shi'ite men to death over an assassination attempt on Saddam at Dujail in 1982.

"Did I ever kick any defense lawyer out of court?" Bandar asked his witness, a former court employee, making ironic capital of the earlier scenes of uproar.

"No. You never did," witness Murshid Mohammed Jasim said, turning to the judge to add: "He always gave the lawyers time to speak and was never angry with them, whatever they did."

He also said the charge that Bandar ordered 32 Dujail youths under 18 to be executed in defiance of Iraqi law was untrue.

A week ago, all eight defendants were charged with crimes against humanity over the killings and detentions, deportations and tortures to which 399 people from Dujail were subjected in reprisal for the attempt on Saddam's life.

Saddam refused to plead and like the others a not guilty plea was entered for him.

Witnesses were also expected to be heard on Monday for Saddam's half-brother Barzan al-Tikriti, his then intelligence chief. Barzan complained to the judge that some of his witnesses could not appear because they were in a U.S. military prison in southern Iraq.

Also on trial is former vice president Taha Yassin Ramadan.