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.

Delegates warned that transitional US rule of their country should be brief, disagreed on whether Islam should be the state religion and said women must have a role in rebuilding the war-shattered nation.

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?"

Ibrahim Al-Oloum, an opposition figure from the central city of Najaf, acknowledged that Garner had a role to play but said it should be "for as short a time as possible."

"The Iraqi people look for both processes, the falling of Saddam and at the same time minding security," he added, referring to the breakdown in law and order unleashed by the US-led invasion of 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 widespread 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 at the Ur gathering 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.

Saphiq al-Suheil, one of the few women attending, noted that Iraqi women had suffered greatly at the hand of Saddam's regime.

"Therefore there is a responsibility for all of you to take into consideration the role of Iraqi women in the construction of a new democratic state."

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.

Iraq has already witnessed a surge in religious violence since Saddam's fall.

"We reject the concept of a confessional democracy that would prevent the Iraqi people from practising 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."

But Sheikh Sami Azer al-Majnoon, wearing a golden robe and red headdress, said the state religion of Iraq must be Islam, saying there could be "no concession."

"This has been a fundamental part of the Iraqi government from its very formation down to this day. And I would like to advise the coalition not to adopt a policy interfering in this area," he said.

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 meeting's delegates voted to meet again in 10 days. The final statement 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.

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