BAGHDAD, IRAQ, JAN. 13 -- Prospects for a diplomatic solution of the Persian Gulf crisis slumped further today as U.N. Secretary General Javier Perez de Cuellar ended apparently fruitless talks here with President Saddam Hussein, saying that "only God knows" if there will be war.

Asked by reporters after the 2 1/2-hour meeting if he was optimistic about the prospects for peace, Perez de Cuellar said: "I am neither optimistic nor pessimistic, but I am always hopeful." Saddam's position, as indicated by an Iraqi official earlier today, remains firm that Iraq will not withdraw its troops from Kuwait and is prepared to go to war to hold onto the oil-rich gulf emirate it seized more than five months ago.

Saddam himself told a gathering of Arab newspaper editors after his meeting with the U.N. leader that "the time for surrender has gone forever" and that "any last-minute chances for peace must come from them, not us."

Perez de Cuellar left Baghdad after telling journalists that he could not discuss the talks until he had reported to the U.N. Security Council, but he said he now had "a very clear understanding of the Iraqi position and had an opportunity of sharing with them some of mine."

In Washington, President Bush told reporters at a brief news conference that he had not yet heard from Perez de Cuellar about the substance of the meeting but that Iraqi leaders would be "making a tremendous mistake" if they do not pull their troops out of Kuwait by the Jan. 15 U.N. deadline.

Perez de Cuellar was flying back to the United Nations via Paris -- where he is to meet with French and European Community leaders -- and is expected to land in New York Monday morning aboard an Air France Concorde. The U.N. leader, who arrived here Saturday night, was kept waiting until 6 p.m. this evening before being allowed to see Saddam, who met with Palestine Liberation Organization chief Yasser Arafat, an American peace activist, a Japanese politician and former Nicaraguan president Daniel Ortega before admitting Perez de Cuellar.

While details of the secretary general's conversation with Saddam were closely guarded, Western and Middle East sources familiar with his mission said Perez de Cuellar had planned to tell Saddam that if Baghdad pulled its troops from Kuwait and agreed to declare unconditional acceptance of all U.N. resolutions on the issue, he would guarantee there would be no military attack on Iraq and that he would call for an international peace conference on the Israeli-Palestinian question "at the earliest convenient time."

The sources said Perez de Cuellar also was to offer to seek deployment of a U.N. peace-keeping force in the region and the lifting of economic sanctions on Iraq in return for Iraqi compliance with the resolutions. In addition, sources said, there was to be another proposal on some form of free elections or political expression in Kuwait after the ousted ruling family returns to power.

The sources said Perez de Cuellar also had been prepared to make proposals on negotiations for regional disarmament that would include talks on chemical, biological and nuclear weapons.

Both the United States and its West European allies have long favored varying proposals for an international conference on a comprehensive Mideast peace, but Israel has staunchly opposed the idea as an affront to its sovereignty. Iraqi leaders have called insistently for such a conference in recent months but have refused at the same time to discuss withdrawal of their forces from Kuwait, a move U.S. officials have demanded as a prerequisite for talks with Baghdad on any other issue.

White House Chief of Staff John Sununu reiterated that demand today but indicated that the United States might not expect every Iraqi soldier to be out of Kuwait before the Jan. 15 U.N. deadline -- which experts say is now impossible to achieve. Sununu, interviewed on the CBS-News program "Face the Nation," said that if "it is clear" Saddam is withdrawing his troops and that the pullout "is on the way to completion, I think the president will take that into account."

On Saturday, the Iraqi government announced the National Assembly had been called into session Monday, giving rise to speculation that an important announcement was being prepared on the Kuwait occupation just in time for the U.N. deadline. The last time the assembly met was in December when it ratified a decision by Saddam to release all foreigners held hostage since Iraq's Aug. 2 invasion. But an Iraqi official, who asked not to be identified, denied that the two-day meeting would deal with withdrawal from Kuwait; rather, he said, the session would condemn "U.S. aggression."

Following his meeting today with Saddam, PLO chief Arafat said he did not take seriously the Tuesday U.N. withdrawal deadline. "In my opinion, there is no deadline," he told reporters at his residence here. "The 15th of January is only a date. In my opinion, it is not the end of the world."

Arafat, who has met frequently with Saddam throughout the crisis, repeatedly dodged questions about whether Saddam has considered any possibility of withdrawal from Kuwait. He suggested the term "withdrawal" is just a slogan and said: "The big question is a solution {to all regional problems}, not only slogans."

Arafat said the crisis has been especially costly to Palestinians because of the loss of income from those who lived in Kuwait. Although it was not clear whether he was criticizing Saddam for the invasion, he told reporters: "The Palestinians have lost $10.5 billion from the occupation of Kuwait. They have lost everything."

In a radio message today, Saddam also rejected a plea to leave Kuwait from Syrian leader Hafez Assad, who has sent nearly 20,000 troops to the military force arrayed against Iraq. "Our 19th province {Kuwait} has become a battlefield for the showdown in which {the Arab people} will be triumphant," Saddam said, and he urged Syria to switch sides and join with Iraq. Assad and Saddam have long been sworn enemies.

Staff writers Nora Boustany in Amman, Jordan, and James L. Rowe Jr. in Washington contributed to this report.