DHAHRAN, SAUDI ARABIA, DEC. 5 -- President Bush's offer to hold direct talks with Iraq has spawned a flurry of Arab diplomatic contacts, with Iraq and its allies hailing the move as the beginning of a "dialogue" but U.S. allies taking a more cautious stand.

"The horse-trading has already started," said a Kuwaiti official. The first big event on the diplomatic calendar is a meeting in Washington between Bush and Iraqi Foreign Minister Tariq Aziz. No date has been officially announced, but, according to sources here, the meeting could take place Dec. 17.

Iraq's key allies -- Jordan's King Hussein, Yemen's Vice President Ali Salem Baidah and PLO Chairman Yasser Arafat -- conferred Tuesday in Baghdad with Iraqi President Saddam Hussein on the upcoming U.S.-Iraqi meetings. Afterward, the leaders said they welcomed the dialogue, urged "a comprehensive solution to the region's issues, particularly the Palestine question," and stressed the need for "starting an inter-Arab dialogue," according to the Iraqi News Agency (INA).

Saddam warned a delegation from the European Parliament, "If President Bush or his representative come here as a policeman to inform us of the United Nations resolution, they would be using such talk as a pretext for further steps toward using force, not for dialogue," according to a statement released by INA.

Saddam also praised the U.S. Congress, which, he said, "feels deeply its responsibility," for "not rushing into war," INA said.

A gathering today in Cairo of key U.S. allies in the region -- Egypt, Syria and Saudi Arabia -- made no collective response, however, reflecting what analysts said was their ambivalence toward Bush's unexpected initiative. These nations did issue individual statements welcoming the move.

The Cairo gathering urged Baghdad to comply with U.N. and Arab League resolutions calling for its unconditional withdrawal from Kuwait and a return of Kuwait's former government.

Saudi King Fahd and Egyptian President Hosni Mubarak appeared caught off guard by the swiftness and direct approach of Bush's offer to Saddam last Friday.

"It was a little bit surprising," said one senior Egyptian official, but he hastened to add that Mubarak was not upset by the move.

Fahd had been alerted by U.S. officials to watch Bush's televised speech because it would contain an important initiative, sources said. But contrary to an earlier account, the king reportedly was not told before-hand that Bush would offer such high-level talks between U.S and Iraqi officials.

The Saudi government later expressed "satisfaction" with the initiative, and stressed that it "sees no contradiction" between Bush's actions and U.N. and Arab League resolutions on the crisis.

But the Saudi statement also mentioned the need for a "restoration of security and stability to the region through the removal of the Iraqi threats and military buildup against the kingdom, other gulf countries and the entire region."

Saudis, in both the government and the public at large, have reacted to Bush's move with either alarm or approval, depending on their perceptions of the crisis.

One camp, whose priority is to get Iraq out of Kuwait and avert war, sees the American initiative as a way to get negotiations restarted between Iraq and its Arab adversaries, and possibly ease Saddam out of Kuwait.

"Talks with Bush will open doors for Saddam to talk with people in the area," one Saudi diplomat said. "Nobody was talking to him." The diplomat predicted that if the Aziz-Bush meeting is successful, "everyone will be running like hell to clean his hands out of the dirt of this problem under the umbrella of the Arab League." A Western diplomat said such views reflect a growing impatience and "unrest" among many Saudis that the crisis has lasted so long. They would like to see it "resolved as quickly as possible," he said, so the government can turn its attention to other issues at home.

However, other Saudis say the core of the crisis goes far beyond Kuwait's occupation and centers on Iraq's political and military threat to Saudi Arabia and other oil-producing gulf states. These Saudis fear that direct U.S.-Iraqi contacts, against a background of an American public opinion largely opposed to going to war, will inevitably lead to concessions to Baghdad to induce it to pull out of Kuwait.

If so, a Saudi official said, "Saddam will have a political victory and we will have a mess," because such a resolution of the crisis would require the continued presence of foreign troops in the region to neutralize Iraq's military might.

"Some people are worried," another Saudi official said, "that America is leaving Saudi Arabia out in the cold, and might promise Iraq something that might embarrass Saudi Arabia."

By agreeing to direct talks with Saddam before he withdraws from Kuwait, these Saudis argue, Washington has already enhanced his political stature, since that is what the Iraqi leader has been demanding of Washington.

A Western diplomat acknowledged Saudi worries about Bush's move, saying: "They are a little apprehensive that there is some sort of deal." His government, he said, has been assuring the Saudis that the U.S.-Iraqi meetings will involve "discussions," not "negotiations."