North Korea accused the United States Wednesday of increasing the danger of war on the Korean peninsula, just hours after Washington changed tack and signaled a willingness to talk about their nuclear standoff. The reclusive communist state's KCNA news agency made no mention of the U.S. offer, nor of the U.N. watchdog's deadline for it to readmit nuclear inspectors within weeks, but decried Washington's "racket of a nuclear threat."

The U.S administration, which had previously insisted North Korea roll back recent steps to revive its nuclear weapons plans before any talks, announced its new position Tuesday after holding talks in Washington with South Korea and Japan.

But it insisted that it would not allow North Korea's nuclear program to become a bargaining chip. Pyongyang has threatened war in the event of U.S. economic sanctions over the issue.

"The 'nuclear issue' that renders the situation on the Korean peninsula strained is a product of the U.S. strategy to dominate the world whereby it is working hard to bring a holocaust of a nuclear war to the Korean nation, calling for a pre-emptive nuclear strike after deploying lots of nuclear weapons in and around South Korea," KCNA said.

Meanwhile, in further diplomatic efforts to end the crisis, a South Korean presidential envoy, Yim Sung-joon, was due at the White House Wednesday while U.S. Assistant Secretary of State James Kelly, who led Tuesday's talks with South Korean and Japanese officials, was to visit Asia at the end of the week.

"The United States is willing to talk to North Korea about how it will meet its obligations to the international community," the three countries said in a joint statement.

"However, the U.S. delegation stressed that the United States will not provide quid pro quos to North Korea to live up to its existing obligations."

The United States has branded North Korea part of an "axis of evil" along with Iraq and Iran and believes it to be building nuclear weapons but has ruled out a military attack.

North Korea's riposte is that Washington is the world's biggest producer and seller of weapons of mass destruction.

South Koreans have been less worried about a perceived North Korean threat than some of their Western allies because they have lived with Pyongyang's bombastic rhetoric for half a century.

SEOUL'S IRAQ FEARS

"What is more serious to us is a war over Iraq because of what it will do to oil prices," said Chung Doo-sun, a fund manager with CJ Investment Trust Management.

"War in Iraq is an uncontrollable risk to us. In whatever direction the North Korean issue is developing, we know it will not lead to a war."

North and South Korea are technically still at war because the truce that ended their 1950-53 conflict never led to a peace treaty, but both look forward to eventual reunification of a country which dates back some 5,000 years.

"People do not think that there is going to be a war in the Korean peninsula," a Unification Ministry official told Reuters.

"People want to solve this issue through dialogue or other peaceful tactics, not through military force."

South Korea's benchmark stock index stayed steady in the morning, partly on the U.S. comments on North Korea, but slipped in the afternoon. The South Korean won was slightly lower but North Korea was not a factor, dealers said.

KCNA reported that more than 100,000 residents of the North's capital, Pyongyang, massed Tuesday to show support for Kim Jong-il's leadership on the 55th anniversary of the founding of the DPRK -- the Democratic People's Republic of Korea.

A banner in the square, which is named after Kim Il-sung, Kim's late father and the state's founder, summed up sentiment.
"Let's make a great victory this year... the 55th anniversary of DPRK establishment on the back of a god-like leader."

SWIPE AT TOKYO

North Korea denounced Japan, meanwhile, for meddling in its business.

"The nuclear crisis on the Korean peninsula arose because of the United States and it has nothing to do with Japan," the South's Yonhap news agency quoted Pyongyang Radio as saying.

"Japan has the effrontery to intervene in the nuclear matter and complicate the issue. It is none of their business."

Yonhap said South Korean president-elect Roh Moo-hyun would meet two Japanese delegations next week to discuss the crisis.

The U.N. nuclear watchdog, the International Atomic Energy Agency, said Tuesday that Pyongyang had "only a matter of weeks" to readmit the IAEA inspectors it expelled last week. Their ejection prompted the new crisis.

Earlier, the reclusive North had intensified its rhetoric, demanding Washington open talks and saying any sanctions over its nuclear program would "mean a war, and the war knows no mercy."

President Bush had hinted at the U.S. change in position Monday, saying "we'll have dialogue," without setting any conditions.

PRECONDITION DROPPED

His aides said later North Korea must first dismantle its nuclear weapon programs, a precondition they acknowledged on Tuesday they had dropped. "This is a step forward from what we have been saying and doing," one senior U.S. official said.

Tensions flared in late December when Pyongyang expelled the inspectors and vowed to fire up a reactor idle since a 1994 pact with Washington that froze its nuclear program in exchange for oil supplies from the West.

The U.S. decision marked a partial step in the direction of South Korea, which has argued for dialogue with the North.

In media leaks over the weekend, South Korea dropped hints it wanted the United States to give North Korea security assurances and a promise to resume energy supplies in return for Pyongyang dismantling its nuclear programs.

Washington is seeking to play down the threat from North Korea, which some analysts believe may already possess one or two nuclear weapons, as it prepares for possible war with Iraq.

It accuses Baghdad of seeking weapons of mass destruction but believes it has not yet acquired nuclear weapons.


PHOTO CAPTION

A South Korean war veteran holds the South Korea and U.S. flags in front of a banner depicting North Korean leader Kim Jong-il during a rally in Pyongtaek, 37 miles southwest of Seoul January 8, 2003. More than 300 social activists and war veterans held a rally to criticize North Korea's nuclear program and support stationing of U.S. troops on the Korean peninsula. (Kim Kyung-Hoon/Reuter