President Bush plans to veto the fiscal 2008 defense authorization bill because of a provision dealing with Iraqi  assets held in the U.S., the White House announced Friday.

In a statement, the White House singled out language in the bill that would allow the lawyers for plaintiffs who had sued the former Saddam Hussein regime to freeze Iraqi funds in U.S. banks. It warned that such
restrictions, if enacted, could take “months” to lift.

The White House statement added, however, that it is consulting with congressional leaders to change the provision so that the president could sign the bill and ensure that its other provisions, including an additional 3.5% pay increase for troops, are enacted.

Both chambers approved the bill’s conference report with veto-proof majorities earlier this month. On Dec. 12, the House cleared the bill 70-49, and the Senate followed two days later, 90-3.

In a joint statement, House Speaker Nancy Pelosi (D-Calif.) and Senate Majority Leader Harry Reid (D-Nev.) called the White House’s decision unfortunate,” citing the bill’s provisions for veterans’ health care and the pay raise.

“We understand that the President is bowing to the demands of the Iraqi government, which is threatening to withdraw billions of dollars invested in U.S. banks if this bill is signed,” said the Democrats’ statement. "The administration should have raised its objections earlier, when this issue would have been addressed without a  veto.”

The statement suggested that the decision stemmed from a last-minute lobbying campaign by Baghdad. Iraq is concerned that plaintiffs, such as former U.S. prisoners of war during the first Gulf War, could use that section of the defense bill to win compensation from those funds, estimated at $25 billion. Iraq warned it may pull its assets out of the U.S. if the bill is signed nto law, the statement added.