"The gravity of the humanitarian situation of the Iraqi people is indisputable and cannot be overstated," the panel said.

The group added that money from the sales would still be expected to pass through the UN.

Iraq's infant mortality rates are among the highest in the world

Baghdad has always resisted the "oil-for-food" program, which lets Iraq sell $5.2bn of oil every six months to buy humanitarian aid.

But even the permitted $5.2bn is not achieved at present, because of low oil prices and production limits.

Following the release of the report's details over the last few days, senior officials in Washington welcomed the recommendations.

They suggested a more flexible future for relief programs - provided they help the Iraqi people and not the government.

No end to sanctions

The four-member UN panel is not calling for an end to the oil embargo imposed after Iraq invaded Kuwait in 1990.

Iraq has demanded for a lifting of the embargo, while France has suggested such a move could persuade Baghdad to allow weapons inspections to resume.

Senior UN officials on the panel said that even if stringent UN sanctions were lifted "it will take a long time before the infrastructure is repaired and the economy recovers."

The permanent Iraqi mission to the UN had no comment on Tuesday.

Three panels

The panel of experts was one of three established by the Security Council in February to provide a basis for an Iraq policy which the 15 divided members could accept.

The other panels, on disarmament, and the repatriation of prisoners and property after the invasion of Kuwait, have also reported recently.

The disarmament group recommended that a more intrusive long-term monitoring system be set up to complete the disarmament of Iraq.

The repatriation panel criticised Baghdad for the absence of a credible explanation on missing archives and military material.

Observation mission

The UN Secretary-General, Kofi Annan, has recommended the extension of Unikom, the observation mission on the border of Iraq and Kuwait.

Concluding the half-yearly review of Unikom, Mr Annan said it continued to receive the co-operation of the Iraqi and Kuwaiti authorities.