Meanwhile, US and Iraqi forces have killed the most senior insurgent leader in Iraq, Abu Omar al-Baghdadi, an Iraqi minister said yesterday.

The Bush administration has shunned Syria, which it considers a state supporter of terrorism, and last month President Bush assailed House Speaker Nancy Pelosi (news, bio, voting record) for making a trip to Damascus, saying it sent mixed messages to the Syrian government. But the White House has been under pressure to talk with Syria and Iran, another U.S. opponent in the region.

Still, a substantive U.S.-Iran meeting appeared less certain. The Iraqi government is pressing for Rice and her Iranian counterpart to hold talks during the gathering, saying Washington's conflict with the government in Tehran is only fueling the instability in Iraq.

In Baghdad, US Maj. Gen. William Caldwell said Syria had tightened its borders to and reduced the number of foreign insurgents crossing into Iraq a chief demand of the United States.

"There has been some movement by the Syrians ... there has been a reduction in the flow of foreign fighters into Iraq" for more than a month, Caldwell said.

Rice and Syrian Foreign Minister Walid Moallem met on the sidelines of Thursday's conference. Earlier, a senior State Department official said they would discuss "Iraqi security issues." The official spoke on condition of anonymity because the meeting was still being arranged.

Both the United States and Iran had also spoken favorably of a possible meeting, but the chances for that remained unclear.

Rice and the Iranian foreign minister "exchanged pleasantries" over lunch, the Egyptian Foreign Minister Ahmed Aboul Gheit said. "They said hello, that's about it," said State Department spokesman Sean McCormack.

Iraq and the United States hope Thursday and Friday's conference of nearly 50 nations at this Egyptian Red Sea resort will rally international support particularly from Arab nations for an ambitious plan to stabilize Iraq.

Iraq is pressing for forgiveness of debt and for Arabs to take greater action to prevent foreign fighters from joining the Iraqi insurgency. Arab countries, in turn, demand his government ensure greater participation by Sunni Arabs in Iraq's political process, echoing the United States.

Iraqi Prime Minister Nouri al-Maliki opened the conference by urging all countries to forgive his country's enormous foreign debts estimated at about $50 billion. Another $100 billion has already been written off by the Paris Club of lender nations.

But Saudi Arabia's foreign minister, Saud al-Faisal, told the conference only that his country "has expressed its readiness to alleviate some of the debts on Iraq" and was currently in discussions with Iraqi officials to deal with the issue "in line with the regulations and bases of the Paris Club."

Iraqi and U.S. officials had said Saudi Arabia privately had already committed to forgiving 80 percent of Iraq's $17 billion debt.

Al-Faisal, addressing the conference, renewed a Saudi offer of $1 billion in loans to Iraq, on the condition that the money be distributed equally among "Iraq's geographical sectors."

Al-Maliki pledged to institute reforms to boost Sunni participation but said forgiving Iraq's debts was the only way the country could rebuild.

Rice's meeting with Moallem marked the first such high-level talks since the February 2005 assassination of former Lebanese Prime Minister Rafik Hariri. Syria denies it had anything to do with the killing, but U.S. and European officials have since shunned the Damascus government.

Iraq and many Arab countries have been particularly eager, even desperate, for such talks between the United States and its Mideast opponents saying they are only the way to stabilize Iraq and lessen Iran's growing influence in the region.

Rice has also said she was willing to meet Iranian Foreign Minister Manouchehr Mottaki, after years of accusations and name-calling between the nations. Iranian President Mahmoud Ahmadinejad had also expressed interest in such a meeting.

During Thursday's session, the two sat on far ends of the large conference hall where the ministers and top diplomats from nearly 50 nations gathered. They both attended a lunch along with the other foreign ministers.

"All of us here today are bound to the future of Iraq. What happens in Iraq has profound consequences which will affect each and every one of us," Rice said in a speech to the conference.

In his speech, Mottaki blamed Iraq's turmoil on "the flawed policies of the occupying powers" referring to the U.S.

Iraq has offered to mediate between Iran and the U.S., an aide to al-Maliki told the Associated Press, speaking on condition of anonymity because of the sensitivity of the discussions.

Al-Maliki told Rice on Wednesday that "a rapprochement must take place between you and the nations of the region to solve the issue of Iraq, particularly Syria and Iran," according to Iraqi Planning Minister Ali Baban, a Sunni.

The U.S accuses Iran of fueling Iraq's violence by arming and backing militants there, a charge Iran denies.

The two-day conference in this Red Sea resort town brings together officials from Iraq, the U.S., Iran, Russia, China, Europe and Arab nations.

TOP REBEL LEADER KILLED
AFP reports from Baghdad: US and Iraqi forces have killed the most senior insurgent leader in Iraq, Deputy Interior Minister Hussein Ali Kamal said yesterday, in a major victory for the allies' security plan.

Kamal said the militant chieftain known as Abu Omar al-Baghdadi, the head of the so-called Islamic State of Iraq, was killed on Wednesday in an armed clash in northwestern Baghdad.

"His body is under the control of the interior ministry," the junior minister told AFP. "His body has been identified."

The Islamic State of Iraq is an umbrella group of Sunni insurgents dominated by Al-Qaeda in Iraq.

It has been blamed for attacks on Shiite civilians and has claimed responsibility for some of the bloodiest assaults on Iraqi security forces.

Separately, US military spokesman Lieutenant Colonel Chris Garver said the military would hold a news conference later yesterday to announce a "recent success against a senior leader of Al-Qaeda in Iraq."

According to an Iraqi security official in the northern city of Tikrit, Baghdadi's mourning family had already begun receiving well-wishers in his hometown of Dhuluiyah, around 75 kilometres (40 miles) north of Baghdad.

The official, speaking on condition of anonymity, said Baghdadi is a 37-year-old law graduate whose real name was Mohib and was well known in the region, itself known for its Al-Qaeda sympathies.

Kamal said Baghdadi was killed in a clash in the Ghazaliyah neighbourhood of northwestern Baghdad, a flashpoint on one of the city's many sectarian fault lines and a focus of recent security operations.

His death would be the first major success of a 10-week-old joint US-Iraqi security operation, which has seen tens of thousands of extra troops and police flood the war-torn capital in a bid to quell sectarian bloodshed.

The Islamic State of Iraq and Al-Qaeda have been blamed for some of the bloodiest recent attacks on Shiite civilians, and Baghdadi's umbrella group has claimed responsibility for murdering dozens of kidnapped police.

The group also claimed responsibility for a suicide bomb attack on Iraq's parliament that killed one MP deep inside Baghdad's fortified Green Zone.

News of the militant leader's apparent demise comes only two days after the Iraqi interior ministry and a Sunni tribal coalition claimed that Al-Qaeda in Iraq's leader, Abu Ayyub al-Masri, had been killed.

This has still not been confirmed -- and Garver was at pains to point out that Thursday's news conference was "not about al-Masri" -- but if it is true the Sunni Islamist insurgency in Iraq would have lost both its top leaders.

Baghdadi's name first came to the public eye in April 2006, when he was anointed leader of a new organisation uniting anti-US insurgent groups by the then Al-Qaeda in Iraq leader, Abu Musab al-Zarqawi.

According to experts on the insurgency, rising dissatisfaction among rebel groups with Jordanian-born Zarqawi's brutal tactics targeting civilians spurred the formation of what was then known as the Mujahedeen Shura Council.

With Zarqawi's death in a US airstrike in June, Baghdadi (whose name means "Omar's father from Baghdad") became the preeminent leader of the insurgency in an effort to give it a more Iraqi face.

Zarqawi's successor at the head of Al-Qaeda, Egyptian-born Masri, was designated as Baghdadi's "war minister".

On October 15, the alliance renamed itself the Islamic State of Iraq to confront de facto Shiite and Kurdish states, according to Islamist websites.

Baghdadi's Al-Qaeda and Sunni insurgent supporters have been blamed for a recent surge in car bombings in Baghdad targeting the city's Shiite majority in an apparent bid to foment sectarian violence.

Since February 14, US and Iraqi forces have been engaged in "Operation Fardh al-Qanoon" (Imposing Law), under which a "surge" in American troop reinforcements has flooded into violent districts.

Thursday's announcement came as Iraq's Prime Minister Nuri al-Maliki met senior international diplomats at a conference in the Egyptian resort of Sharm el-Sheikh to discuss ways to return his country to stability.