DHAHRAN, SAUDI ARABIA, DEC. 6 -- Saddam Hussein decided to release his foreign hostages in an effort to upgrade forthcoming U.S.-Iraqi diplomatic contacts into full-fledged negotiations on Middle East issues, according to Arab diplomats and analysts.

In their view, the Iraqi leader's surprise announcement today that he would free the hostages, including 88 Americans held as "human shields" at strategic Iraqi military sites, is also an attempt to weaken the international coalition arrayed against Baghdad and increase domestic pressures on the Bush administration to delay early military action.

"Saddam wants to transfer {the upcoming talks} to negotiations. He's playing with American public opinion," said a senior Egyptian military source. "He wants to defeat Mr. Bush at home."

President Bush and Secretary of State James A. Baker III both insist that their planned meetings with Foreign Minister Tariq Aziz and Saddam will not be negotiating sessions but opportunities to tell the Iraqis directly that they must obey United Nations resolutions demanding their withdrawal from Kuwait if war is to be averted.

Saddam's letter to the Iraqi National Assembly requesting approval of the hostages' release suggested that the Iraqi leader knows his move is likely to heighten pressure on the Bush administration to delay military action and pursue a negotiated settlement.

He was acting, Saddam wrote, in response to "the appeal by some Arab brothers {and} the decision of the Democratic majority in the U.S. Senate" to seek congressional approval for any military action in the gulf.

Iraq's ambassador to the United States, Mohamed Mashat, also referred to American public opinion in explaining Saddam's move. "The American public, more and more, are aware that going to war and killing American boys, and killing Iraqis and others and having a catastrophe, has no reason whatsoever," he said.

By all accounts, this play on American public opinion is vintage Saddam. He is a shrewd and clever tactician who is quick to see his opponents' weaknesses. But some analysts also said that Saddam, having used the hostages to gain four months' time and to bring to his doorstep a steady flow of world leaders seeking their release, has now decided he wants to clear the atmosphere for the Bush-Aziz meeting.

"I think he realizes he has passed the maximum advantage to be gained from this {hostage} card . . . so he's trying to throw it out," said an Egyptian diplomat.

"It was a pain in the neck, the whole {hostage} operation," argued a Saudi source. "He tried hard to take advantage {from} it. . . . He will concentrate now on the main thing -- how to get Bush" involved in negotiations about terms for an Iraqi pullout from Kuwait.

Saddam had previously offered to release all hostages in return for a public commitment from some permanent member states of the U.N. Security Council that he would not be attacked by the United States. This proposal, which did not include an offer to pull out of Kuwait, was ignored.

But on Sunday, Baker said in a televised interview that if Saddam complied with the U.N. resolutions demanding Iraq's withdrawal from Kuwait, the United States would not launch a military strike against his forces.

This was the first explicit U.S. statement confirming that Saddam would have immunity from attack if he obeyed the U.N. resolutions. "This is a big gain for him," said an Egyptian diplomat, who speculated that Baker's comments were a factor in Saddam's decision to let the hostages go.

Some Arab officials say they are convinced that Saddam, realizing that he cannot win a military confrontation with the United States, will withdraw from Kuwait prior to the U.N. deadline of Jan. 15, and that his decision to release the hostages is the first stage in that plan.

But others believe that Saddam is still playing for time, trying to drive wedges in the international coalition against him, and that the hostage release is part of this delaying strategy. "He is trying to win time. All of that is to break through the international coalition. That is his game," said the Egyptian military source.

This source said he saw no indication that Saddam is getting ready to pull out of Kuwait, adding that fresh intelligence indicated the contrary, with more fortifications being built and more troops recently sent to the occupied emirate.

His remarks dovetailed with new Pentagon assessments released today, saying that 30,000 more Iraqi troops have joined the 450,000 already positioned in southern Iraq and Kuwait.

The Saudi government made no mention of Saddam's move to free the hostages, and it was ignored on tonight's television news.