KENNEBUNKPORT, MAINE, AUG. 27 -- President Bush said today that he remains pessimistic about the chances for a diplomatic solution to the Persian Gulf crisis, but he nonetheless praised the efforts of U.N. Secretary General Javier Perez de Cuellar to initiate diplomatic talks with the Iraqis this week.

Bush said that despite increased diplomatic activity, there can be no compromise on the conditions for a negotiated settlement and said he sees no evidence that Iraqi President Saddam Hussein is ready to agree to the terms laid out by the United Nations in a series of resolutions condemning the Iraqi invasion of Kuwait.

"Saddam Hussein has been so resistant to complying with international law that I don't yet see fruitful negotiations," Bush told reporters after meeting here with Canadian Prime Minister Brian Mulroney.

Despite Bush's low expectations, a sense of guarded optimism over diplomatic progress began to emerge in the Middle East as Arab leaders, led by Jordan's King Hussein, pursued new initiatives. {Details on Page A8.}

Perez de Cuellar, speaking to reporters in New York, called on "all parties" to exercise "maximum restraint" while diplomatic efforts are underway. "I am persuaded personally that President Bush won't undermine my efforts and that for me is very important," he said. Perez de Cuellar is scheduled to meet Thursday in Jordan with Iraqi Foreign Minister Tariq Aziz.

In the Persian Gulf, there were new signs that Saddam was seeking to avoid any chance of military confrontation with U.S. forces.

Military sources in Washington said Iraq had instructed its commercial ship captains not to resist warships of the United States and other nations seeking to enforce the United Nations trade embargo against Iraq with a naval blockade.

"We understand the Iraqis ordered the captains of their merchant ships to comply with interdiction orders," one military official said. The new posture by Iraq comes after the weekend vote of the U.N. Security Council authorizing the use of force to stop ships trying to run the blockade now in place in the Persian Gulf, Gulf of Oman and Red Sea.

Administration officials said Iraq had taken other steps to avoid a military clash that might lead to general war between U.S. forces and the Iraqi armed forces.

One official said there was now "no evidence" to support earlier intelligence reports that Iraq had moved modified Scud B missiles into Kuwait to threaten Saudi cities and airfields with conventional and possibly chemical warheads. In addition, he said, "They {the Iraqis} are being very careful with their air power so as not to violate the border with Saudi Arabia."

Bush and his national security advisers plan to brief members of Congress on the military situation when the president returns to Washington Tuesday.

The congressional group also will hear from Secretary of State James A. Baker III, Defense Secretary Richard B. Cheney, Gen. Colin L. Powell, chairman of the Joint Chiefs of Staff, and Director of Central Intelligence William H. Webster, according to White House press secretary Marlin Fitzwater.

But the diplomatic focus will be on Perez de Cuellar's Thursday meeting with Aziz in Amman, the Jordanian capital. The U.N. secretary general will also meet with King Hussein, whose close ties to Baghdad have undermined the monarch's standing in Washington.

Hussein has been seeking clarification of the "humanitarian" exemption in the U.N. trade embargo, which U.S. intelligence has indicated Jordan may be violating. A stream of heavy trucks has continued crossing into Iraq from Jordan, an administration official said, in apparent violation of the U.N. ban against the export or "transshipment" of any goods bound for Iraq.

The U.N. mission has focused new attention on using diplomacy, rather than military conflict, to settle the crisis. But Bush and other administration officials sought to play down the prospects for any immediate diplomatic breakthrough.

Bush made clear there has been no change in the U.S. position sup-porting U.N. resolutions that call for the unconditional withdrawal of Iraqi forces from Kuwait, the restoration of the Kuwaiti government and freedom for American and other foreign nationals held hostage.

"We would oppose any compromise on these fundamental principles," he said.

Administration officials have no clear expectations for a meeting of Arab League leaders also to be held Thursday, in Cairo. While the administration believes there is a role for the Arab nations in any negotiated outcome of the crisis, it is skeptical about the possibility of an "Arab solution," because the Arab nations do not have the military might to checkmate Saddam's million-man army.

Meanwhile, U.S. naval forces continued to monitor about a half-dozen ships in the Persian Gulf that either were Iraqi registered or carrying cargo that would violate the embargo if landed at port.

An administration official said there are now four tankers at anchorage in the port of Aden in Yemen, but none is attempting to offload its cargo. Yemen expelled a British diplomat who had earlier photographed the partial off-loading of one of the ships.

Administration officials did not provide details on how U.S. intelligence monitored the Iraqi instructions that went to ship captains, but information about the instructions was circulated widely yesterday at the White House and Pentagon.

One official suggested that it could have been as simple as monitoring the open radio communications in the Persian Gulf area, where shore-based shipping agents relay information from ship owners. These communications are frequently monitored by governments and other commercial interests.

Another military official said that the Joint Chiefs of Staff and the U.S. Central Command is working on new orders for U.S. warship commanders, giving them detailed guidance on escalating steps they can employ to force any suspect ship to heave to and submit to a search.

The additional orders follow two encounters on Aug. 18, when U.S. warship commanders fired warning shots across the bow of two Iraqi ships. In both cases, the Iraqi captains ignored the warning shots and proceeded on their way.

Bush and Mulroney, whose visit originally was scheduled as a purely social call, discussed the ongoing dipomatic and military activity, and appeared to have ironed out earlier differences in tone on the use of force to enforce the blockade and on talks with Saddam's regime.

"I think any nuances of difference are so overwhelmed by the common ground that they are almost meaningless," Bush said.

Mulroney said he believed the current level of Canadian military deployment in the gulf -- three ships -- was adequate for now, and he praised Bush's leadership in rallying the U.N. to condemn the invasion by Saddam, whom he described as a "rogue leader."

Staff writer Patrick E. Tyler in Washington and special correspondent Trevor Rowe at the United Nations contributed to this report.