Both sides said they wanted a peaceful end to the crisis but have ratcheted up tensions after North Korea announced it would expel UN nuclear arms inspectors and reopen a reactor that can produce weapons-grade plutonium.

US Secretary of State Colin Powell said that while military action was always an option the United States was not planning any attack on North Korea, which vowed it would not give in to US pressure.

"We are not planning a pre-emptive strike," Powell told NBC television. "The United States has a full range of capabilities -- political, economic, diplomatic and, yes, military. But we are not trying to create a crisis atmosphere by threatening North Korea."

"Military action is always an option, but it is not an option that is in the forefront of our thinking right now, because it doesn't seem necessary or appropriate," he told ABC, in a separate television interview in Washington.

But Powell also ruled out immediate talks with the North Koreans, who want direct talks with Washington, arguing that would reward Pyongyang for violating international agreements.

The Bush administration has labeled North Korea part of an "axis of evil," along with Iran and Iraq.

ECONOMIC PRESSURE

US officials said on Saturday that Washington favored what they called a "tailored containment" strategy including economic pressure and possibly stopping cash-strapped North Korea's missile exports by intercepting them at sea.

Powell avoided a question on intercepting missile exports on Sunday and did not elaborate on the economic measures, which drew a defiant reaction in North Korea.

"The imperialist reactionaries are seriously mistaken if they think they would bring the Korean people to their knees with pressure," the KCNA news agency said on Sunday, quoting an editorial in the official Rodong Sinmun newspaper.

But the editorial added that the government was keen to settle the crisis in a peaceful way. It did not give details.

On Saturday, 10,000 people turned out in a protest in Pyongyang to denounce Washington over its hardline policy on the country's steps to revive a nuclear program that might have already produced one or two atomic bombs.

North Korea has ordered inspectors from the International Atomic Energy Agency (IAEA) to leave, the latest escalation of a crisis analysts say is aimed at goading Washington and its allies into giving aid to the starving nation of 22 million.

"This is a country in defiance of its international obligations," said IAEA Director General Mohamed ElBaradei in a statement, after the watchdog agency said its inspectors would quit North Korea on New Year's Eve. "It sets a dangerous precedent for the integrity of the non-proliferation regime."

WEAPONS-GRADE PLUTONIUM

Besides the interdiction of shipments, the United Nations, with US backing, may threaten sanctions if North Korea takes further steps to restart the plant that could produce weapons-grade plutonium, US officials said.

"If they don't turn it around, this is where we're going to end up. Nobody wants this to happen. But the North Koreans aren't giving anybody much to work with," one official said.

"Our strategy is to stick together and to step up pressure," the official said.

The Bush administration, which is keen to keep its focus on Iraq, is pushing for the UN Security Council to take up the crisis on the world's last Cold War frontier by January 12.

Defense Secretary Donald Rumsfeld has expressed confidence that the military could win wars with Iraq and North Korea, as well as the war on terrorism, but military analysts said there would be numerous difficulties in facing such a triple threat.

South Korea, whose president and president-elect favor the "sunshine policy" of aid and dialogue in dealing with North Korea, said it would discuss strategy with the United States and Japan in January. The North has large forces ranged along the border, just a short distance from the South Korean capital, Seoul.

North Korea announced on Friday it was firing up a reprocessing laboratory that could convert spent fuel into the plutonium needed for making nuclear bombs and had begun moving fresh fuel rods to the five-megawatt research reactor in Yongbyon, 88 km (55 miles) north of Pyongyang.

North Korea told the IAEA its inspectors must leave as a 1994 agreement, under which it was given fuel oil in exchange for compliance on non-proliferation, had broken down.

The United States and its allies cut off the oil after North Korea told a visiting US official in October it had a covert nuclear program.

(China Daily December 30, 2002)