By DAVID GARDNER

Last updated at 23:45 26 September 2007

Saddam Hussein offered to step down and go into exile one month before the invasion of Iraq, it was claimed last night.

Fearing defeat, Saddam was prepared to go peacefully in return for £500million ($1billion).

The extraordinary offer was revealed yesterday in a transcript of talks in February 2003 between George Bush and the then Spanish Prime Minister Jose Maria Aznar at the President's Texas ranch.

The White House refused to comment on the report last night.

But, if verified, it is certain to raise questions in Washington and London over whether the costly four-year war could have been averted.

Only yesterday, the Bush administration asked Congress for another £100billion to finance the conflicts in Iraq and Afghanistan.

The total war bill for British taxpayers is expected to reach £7billion by next year.

More than 3,800 American service personnel have lost their lives in Iraq, along with 170 Britons and tens of thousands of Iraqi civilians.

However, according to the tapes, one month before he launched the invasion Mr Bush appeared convinced that Saddam was serious about going into exile.

"The Eqyptians are speaking to Saddam Hussein," said Mr Bush.

"It seems he's indicated he would be prepared to go into exile if he's allowed to take $1billion and all the information he wants about weapons of mass destruction."

Asked by the Spanish premier whether Saddam - who was executed in December last year - could really leave, the President replied: "Yes, that possibility exists. Or he might even be assassinated."

But he added that whatever happened: "We'll be in Baghdad by the end of March."

Mr Bush went on to refer optimistically to the rebuilding or Iraq.

The transcript - which was published yesterday in the Spanish newspaper El Pais - was said to have been recorded by a diplomat at the meeting in Crawford, Texas, on February 22, 2003.

Mr Bush was dismissive of the then French President Jacques Chirac, saying he "thinks he's Mr Arab".

Referring to his relationship with Downing Street, he said: "I don't mind being the bad cop if Blair is the good cop."

The President added: "Saddam won't change and he'll keep on playing games.

"The time has come to get rid of him. That's the way it is."

Days before the invasion began on March 22, 2003, the United Arab Emirates proposed to a summit of Arab leaders that Saddam and his henchmen should go into exile.

It was the first time the plan had been officially voiced but it was drowned out in the drumbeat of war.

A spokesman for Mr Aznar's foundation had no comment on its authenticity.

Bomb attacks killed 57 people in Iraq yesterday.