The United States gathered around 80 exiles, opposition figures and tribal and religious leaders in the Biblical city of Ur for the first in a series of meetings to lay the groundwork for a democratic government in Baghdad.

But around 20,000 mostly Shiite Muslims rallied in the nearby city of Nasiriyah to protest US influence in shaping post-Saddam Iraq, underscoring the pitfalls facing Washington's effort to re-make the country after 24 years of dictatorship.

The meeting released a 13-point statement vowing democracy would be brought to the nation and that the future government would be non-sectarian, based on the rule of law and chosen by Iraqis themselves.

The special White House envoy to the Iraqi opposition, Zalmay Khalilzad, told the meeting that the United States had "no intention of ruling Iraq" after the fall of Saddam.

"We want you to establish your own democratic system based on Iraqi traditions and values," he said.

Jay Garner, the retired US general named by Washington to lead an interim administration in Iraq, asked: "What better place than the birthplace of civilization could you have for the beginning of a free Iraq?"

It remained unclear how long it would take to get an Iraqi government in place, amid internal divisions in the nation's fractious ethnic, tribal and religious makeup, and widepsread distrust over any potential US powerbroking.

An AFP correspondent in Nasiriyah witnessed a tense standoff in the city as demonstrators unleashed their wrath over Ahmad Chalabi, who has had Pentagon backing as a future Iraqi leader but is not seen as having broad popular support.

Chalabi did not attend the meeting, but sent a delegate to represent his umbrella Iraqi National Congress.

Demonstrators were mostly Shiite Muslims who were suppressed by Saddam's Sunni Muslim minority. The largest Shiite group declined to attend the meeting and blasted what it saw as US interference in the country's future.

"We refuse to put ourselves under the thumb of the Americans or any other country because that is not in the Iraqis' interests," Abdul Aziz al-Hakim, a top official of the Iran-based Supreme Assembly of the Islamic Revolution in Iraq, said on Monday.

One of the delegates dropped to his knees and kissed his native soil after years of exile before the meeting got underway. Others had tears streaming down their faces.

In Washington, US President George W. Bush said reconstruction will take time but added: "A free Iraq can be an example of reform and progress to all the Middle East."

There have been concerns that the nation's mix of Kurds, Shiites and Sunnis -- held together by the might of Saddam's regime -- might split the country along ethnic, religious or tribal lines.

That concern has been especially intense in northern neighbour Turkey, which fears a resurgence of a quelled Kurdish independence movement and during the war threatened to send in troops if Kurds took over key oil-rich cities in the north.

"We reject the concept of a confessional democracy that would prevent the Iraqi people from practicing religion," Sheikh Ayad Jamal al-Din, a Shiite leader from Nasiriyah, told the meeting to scattered applause.

He called for a "system of government that separates belief from politics."

Iraq has already witnessed a surge in religious violence since Saddam's fall, with a leading cleric seen as pro-US assassinated in the holy city of Najaf and another threatened by armed gangs who told him to flee the country.

Some protesters at the Nasiriyah rally demanded that the Hawza, or Islamic seminary, in the holy city of Najaf must govern Iraq in the future.

"The popular and religious forces that have organised this demonstration feel that the Hawza in Najaf is the sole representative of the Iraqi people," an imam named Warrad Nasrallah told AFP.

The meeting's delegates voted to meet again in 10 days as the nation faces the uphill task of rebuilding and restoring security amid the anarchy and looting which have reigned on the streets since Saddam was toppled.

The final statement said the future Iraq government must reject political violence and that the remnants of Saddam's brutal Baath party, which enforced his iron rule, must be dissolved and eliminated.

It also called for urgent steps to rebuild the war-shattered nation and said Iraqis must cooperate with the US-led coalition to restore basic services and security.

The gathering was also attended by representatives from Australia, Britain and Poland, which all contributed forces to the US-led coalition that launched the war on March 20 to oust Saddam and track down his alleged weapons of mass destruction.

burs-mc/wai

SPACE.WIRE