BAGHDAD, IRAQ, DEC. 6 -- Iraqi President Saddam Hussein said today that all the 2,000 or more foreigners being held hostage in Iraq and Kuwait are to be released promptly, and the country's rubber-stamp National Assembly scheduled a special session for Friday to carry out his order.

The surprise announcement -- which meets one of the three U.N. objectives for resolution of the four-month-old Persian Gulf crisis -- was cautiously applauded by U.S. Embassy officials and visiting hostage relatives here. While there was no official indication when the hostages would be freed, Iraq's U.N. ambassador said they would be home by Christmas.

Saddam cited appeals by other Arab leaders, expressions of concern about war by U.S. Senate Democrats and pleas from a European Parliament delegation as positive factors in his decision. He said all this "encouraged" him "to respond to these good, positive changes -- changes that will have a major impact on world public opinion in general, and U.S. public opinion in particular, in restraining the evil ones who are seeking and pushing for war."

The statement, read over state-run Baghdad Radio, was viewed by U.S. and other Western diplomats here as a potential breakthrough in the hostage crisis.

The mood was one of nervous happiness at the government-operated Mansour Melia Hotel tonight, where groups of American, British and Japanese hostages being held there and elsewhere in Baghdad were meeting with relatives who arrived today.

Sue Vinton, of Santa Fe, N.M., visiting her hostage husband, exploded with excitement: "It's really been an emotional day. This is just wild." But Barbara Smiley, of Los Angeles, wife of a hostage, said, "I still don't know whether to believe it."

Relatives said they would proceed with plans made before today's announcement to appeal to Saddam for the hostages' release, and one hostage, hearing of Saddam's announcement, said, "I won't believe it until we've cleared Iraqi air space."

As hostages and relatives ate and drank in a ballroom ostentatiously decorated by Iraqis with a 12-foot Christmas tree and yellow balloons, however, there were chilling reminders that those held here still were not free. Hostages were blocked from moving freely in the hotel and security officials were seen roughly pulling one through a doorway.

Iraqi officials here refused to say when the hostages would actually be freed, but Western diplomats said they expected it would be soon after the National Assembly acts Friday.

At the United Nations, Iraqi Ambassador Abdul Amir Anbari said Iraq "definitely" wanted all hostages home with their families by Christmas, the Associated Press reported.

"Obviously we're delighted for the {hostages} and their families," Joseph Wilson, charge d'affaires at the U.S. Embassy said tonight. "I put a bottle of champagne in the refrigerator and will light my cigar as soon as I see the first hostage leave."

Diplomats here interpreted Saddam's statement as applying to hostages who do not have current work contracts with the Iraqi government. Those who do, they said, would probably need to obtain the approval of their Iraqi employers to leave.

Diplomats said they did not see any hitch to the release and pointed out that approval of the request by the National Assembly was a pro-forma move. A week after it invaded Kuwait on Aug. 2, Iraq closed its borders in response to the multinational troop buildup in the region, and Saddam went to the assembly for its formal "approval" to hold foreigners hostage.

Saddam said today that while the foreigners' forced presence in Iraq as hostages "has rendered a great service to the cause of peace" and allowed Iraqi forces to complete their deployment in Kuwait, they are no longer needed. "We have now reached the time when, with God's care, our blessed force has become fully prepared" to hold Kuwait, he said.

Until this week, there were believed to be about 5,000 foreigners kept here against their will. Iraq said Tuesday it would free the more than 3,000 Soviets working under contract here, leaving about 2,000 hostages, about 900 of them Americans, being held in Iraq or hiding in Kuwait.

Throughout the crisis, Saddam has said he was using the hostages as protection against U.S. military action. To this end, about 90 Americans, most of them captured in Kuwait, have been held with European and Japanese hostages at strategic military and industrial sites in Iraq as "human shields" to deter attack.

In today's statement, Saddam acknowledged that "any measure that was taken to delay the war may not have been correct from the humanitarian and practical standpoints and under established norms, but it has provided an opportunity for us to prepare for any eventuality."

Saddam gave no hint that he expected the hostages' release to ease hostilities between Iraq and the U.S. government.

Besides release of all foreigners, the United States and the United Nations have demanded Iraq's unconditional withdrawal from Kuwait and restoration of that country's ruling monarchy. In addition, the United States has called for assurances of stability in the gulf region.

Asking the Iraqi people to "maintain your alertness and vigil," Saddam said Bush's invitation for high-level talks -- with Secretary of State James A. Baker III coming to Baghdad and Iraqi Foreign Minister Tariq Aziz going to Washington -- "has continued to bear the possibilities of the inclination toward aggression and war. The buildup is growing."

In a news conference tonight, Information Minister Latif Nassif Jassim reinforced already stated Iraqi suspicions about the U.S.-Iraqi meetings.

"We have no confidence and no trust in the U.S. administration," he said. "We think that this move {the talks} is just a manipulation. . . . While we take this step . . . we believe they would like to attack us at any moment."

The statement follows informal discussion by some members of the U.N. Security Council of a new resolution on the Palestinian issue that would include a call for convening, "at an appropriate time," an international peace conference on the Middle East. A U.S. diplomat here said he doubted that Saddam's statement on the hostages was linked to those discussions and the statement did not refer to them.

Rather, the statement cited recent visits by Arab officials friendly to Iraq -- such as Jordan's King Hussein, PLO Chairman Yasser Arafat and Yemen's Vice President Ali Salim Bayd -- who have "consulted with us on this subject."

As Saddam's unexpected announcement of the planned release was being broadcast, another side of Iraq's handling of the hostages could be seen at the Mansour Melia Hotel.

At least six American hostages shared with their visiting wives a showcase meal sponsored by the Iraqi government, and more than 30 just-freed Japanese hostages and their wives waited for passports allowing the men to leave.

But despite the festive setting, some of the hostages and their relatives said the line between freedom and captivity seemed cruelly thin and deceptive.

Iraqi hotel employees had bedecked the ballroom with a decorated Christmas tree standing at the end of deep red Arabian carpets rolled out for the occasion. The Iraqis had hung yellow balloons -- the U.S. color symbolizing the wait for freedom for the hostages -- on the walls.

Regular hotel guests, including a formal wedding party, enjoyed the run of the hotel -- but not the hostages. These, including several British men who had been kept in rooms monitored by Iraqi security agents, were not allowed to walk into the lobby. Reporters who were in the lobby were also closely watched and often blocked from interviewing hostages and their wives.

Shortly after Saddam's statement had been made public, Iraqi security officials at the hotel forbade reporters from speaking with foreigners inside -- an order reversed an hour later.

As I wandered through the hotel, two Iraqi security men brought in a Western hostage, roughly tugging him by his clothes as he entered the hotel.

A U.S. Embassy consular affairs officer sitting with a group of British hostages in the bar said the Americans had asked her to immediately arrange for a chartered flight out of Iraq. As a security official abruptly separated her from reporters, she quickly added: "They've lied to us so many times before. . . . "

Aug. 2: Iraq invades Kuwait, trapping tens of thousands of foreigners.

Aug. 9: U.S. troops are deployed to Saudi Arabia. Iraq closes its borders, stranding thousands of Americans and other Westerners.

Aug. 19: Saddam Hussein offers to free all foreigners if the United States promises to withdraw from Saudi Arabia and guarantees the U.N.-imposed embargo will be lifted.

Aug. 20: Iraq says it has moved Western hostages to strategic installations as human shields.

Aug. 23: Iraqi TV shows Saddam talking to Western women and children and telling them: "Your presence here and other places is meant to prevent . . . war."

Aug. 24: Iraqi troops surround the U.S., British and other embassies in Kuwait and detain about 100 U.S. Embassy staff and dependents after promising them safe passage from Baghdad.

Aug. 26: Fifty-two Americans, wives and children of diplomats from the embassy in Kuwait, arrive in Turkey after being detained in Iraq. Three sons of diplomats are turned back by Iraqi officials.

Aug. 30: Diplomats in Baghdad say Iraq will allow planes to pick up Western women and children only if the aircraft fly food and medicine into Iraq.

Sept. 27: Iraq threatens to hang diplomats sheltering Westerners in their embassy compounds.

Oct. 29: Iraq allows all French nationals to leave.

Nov. 7: Washington denounces the procession of Western politicians to Baghdad seeking the release of hostages.

Nov. 9: Former West German Chancellor Willy Brandt leaves Baghdad with 177 hostages.

Nov. 18: Iraq offers to release all hostages between Dec. 25 and March 25, the most likely period for an allied attack, "if nothing mars the atmosphere of peace."

Nov. 20: Iraq's parliament says all German hostages can leave.

Nov. 26: Moscow accuses Iraq of breaking an agreement to allow 1,000 Soviet citizens in Iraq to leave. Iraq's rubber stamp parliament approves allowing some 60 Swedish hostages to leave.

Nov. 28: Seventy-seven Italians are freed through the intercession of Melchite Catholic Archbishop Hilarion Capucci.

Nov. 29: Soviet Foreign Minister Eduard Shevardnadze warns that Moscow will not hesitate to use force to protect Soviets trapped in Iraq.

Dec. 2: Boxing legend Muhammad Ali leaves Baghdad with 15 U.S. "human shield" hostages after meeting Saddam. Iraq also releases 25 Belgians.

Dec. 4: Iraq says that more than 3,200 Soviets remaining in Iraq can leave.

Dec. 6: Saddam asks parliament to approve freeing all remaining hostages.

SOURCES: The Washington Post; Associated Press

FOREIGNERS HELD CAPTIVE IN IRAQ AND KUWAIT

Americans

Fewer than 1,000; 88 are believed held at strategic sites as "human shields."

Britons

1,175; 350 believed held as "human shields."

Japanese

197; 78 believed held as "human shields."

Soviets

3,300; Iraq agreed on Tuesday to allow Soviet hostages to leave, providing the Soviet government paid compensation for broken employment contracts.

SOURCES: U.S. State Department; embassy reports