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The announcement came as about 100 United Nations relief staff returned to Baghdad following the US and British air strikes.

UN humanitarian staff oversee the distribution of food and medicine bought under Baghdad's oil-for-food deal, which is aimed at offsetting the suffering caused by a trade embargo.

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Iraq has been allowed to sell oil worth $5.2bn every six months to buy essentials for its 24m people.

But US Under Secretary of State Thomas Pickering said given the fall in world oil prices the amount of oil Iraq could export should be increased if its people were suffering for lack of food.

Damage in Qorna, a city south of Baghdad

The final decision will rest with UN Secretary-General Kofi Annan and his advisors.

Britain and the US launched air strikes after the UN teams charged with overseeing the dismantling of Iraq's weapons of mass destruction said Baghdad was obstructing their work.

Power of veto

The American concession comes as a deeply divided UN Security Council tries to find a way forward in the Iraq crisis.

France has proposed a radical shake-up in the existing weapons inspection regime, and Russia is calling for chief weapons inspector Richard Butler to be replaced.

However, Britain and the US say they will strike again if Iraqi President Saddam Hussein refuses to co-operate with the current inspection programme.

Some countries, including France, have also suggested revising the trade embargo imposed after Iraq's invasion of Kuwait in 1990.

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But the US says it is willing to use its veto power in the Security Council to keep Iraq under sanctions.

Mr Pickering said there was no question of lifting sanctions until Iraq begins to disarm to the satisfaction of the UN inspectors.

But Baghdad has said it will never allow the weapons inspectors back into the country following the strikes.

UK: We hit three quarters of our targets

Meanwhile, Britain has hit back at Iraqi assertions that the strikes were a failure.

UK Defence Secretary George Robertson, said three-quarters of the sites targeted in Operation Desert Fox were destroyed.

British and US forces targeted 100 sites during their four-day campaign, which ended on Saturday, hitting 85 of the targets and destroying 74, according to the Ministry of Defence.

These included a hangar said to house aircraft designed to deliver biological and chemical bombs and part of a steel plant believed to be used to make components for nuclear programmes.

Mr Robertson said the strikes had been successful in avoiding civilian casualties. But Iraq maintains the raids caused more civilian than military casualties.

The Iraqi military also reported two new violations of Iraqi airspace on Tuesday by warplanes in the south of the country. Iraq said they fired two missiles.

Both Britain and the US have denied any involvement.