U.S. and allied aircraft continued to pound military targets in Iraq and Kuwait today, meeting little resistance from Iraqi forces in a massive campaign to destroy Iraqi President Saddam Hussein's offensive capability and force his withdrawal from Kuwait.

World financial markets soared on early reports that the U.S.-led bombardment had scored significant hits, lifting hopes that the Persian Gulf war might be short. Europe's spot market for crude oil recorded its biggest drop in history, with prices in London tumbling to $21 per barrel after initially surging over $31 per barrel in Tokyo. Stock and bond markets in the United States, Asia and Europe rose sharply in hectic trading.

In the first reports of allied casualties, the Pentagon confirmed that one American F/A-18 fighter and its pilot had been lost over Iraq. A military official in Washington said the plane had taken off from the carrier USS Saratoga in the Red Sea and "did not come back." British officials also reported one Tornado fighter-bombers lost, and France said four of its planes were hit and a French pilot wounded, although the aircraft had returned to their bases.

At the Pentagon, officials said more than 1,000 bombing runs had been flown in the first 14 hours of battle, with British, French, Saudi and Kuwaiti aircraft joining American planes in the attacks. The targets included Iraqi missile sites, radar installations and airfields as well as the defense ministry in Baghdad and command bunkers around the country.

According to military sources in Washington, an attempted raid by 14 Iraqi military aircraft on targets in Saudi Arabia was prevented by U.S. interceptor jets which shot down 10 of the Iraqi planes. There were no U.S. losses in that air battle, they said. The four Iraqi planes that escaped were seen returning to Kuwait. It was not immediately clear where in the skies the battle occurred or what type of planes were involved, but U.S. intercepters most likely were Air Force F-15 Eagles and Marine F/A-18 Hornets.

Joint Chiefs of Staff Chairman Gen. Colin L. Powell confirmed there were "air-to-air engagements," adding that the "Iraqi air force is still out there." But Pentagon spokesman Pete Williams said that reports of an attempted Iraqi raid could not be confirmed.

Defense Secretary Richard B. Cheney, speaking briefly to reporters this morning, said "to date the operation is going very well." But he said he wanted to "emphasize the importance of being cautious," citing optimistic news reports and claims of victory. It is "very, very important for people to remember" that this was the "very early stages of an operation that is going to run a long time." Cheney said "there have been casualties and there will be more." He added, "So far so good."

Cheney said that in addition to the aircraft missions, 100 Tomahawk cruise missiles had been fired at Iraqi targets. Cheney said satellite assessment had begun to see what targets need to be rehit, but Powell said that the air strikes had been "80 percent effective."

"The response from Iraq has been limited," said Lt. Col. Mike Scott, briefing reporters in the Saudi capital of Riyadh. He said there have been no reports of launches of Iraqi Scud missiles, which U.S. officials had feared might be fired against Saudi Arabia and Israel in the early hours of war.

The only reported Iraqi offensive strike appeared to have been an artillery attack that set three oil tanks ablaze in northern Saudi Arabia near the border town of Khafji, with no injuries reported. Baghdad radio claimed Iraqi antiaircraft units shot down 14 attacking warplanes. But there was no confirmation of the report.

British Defense Secretary Tom King, briefing reporters in London, said, "So far it has been encouraging, but 'so far' is the right word to use." King cautioned repeatedly against being overly optimistic.

"We believe there is significant evidence we have severely damaged Iraq's air defenses," he said, adding that "in the main the targets were hit and the objectives were achieved, but it is early and we have yet to see whether initial successes will be carried on. I would warn people about jumping to early conclusions."

King called Iraq a "country that possesses very significant armaments" and "very nasty weapons."

President Bush appeared in the White House press room at 5:30 this morning, saying, "Things are going well, exactly as you've all reported." The president said he was normally awake at such an early hour, "so I just decided to come over here."

In Baghdad, Peter Arnett of Cable News Network reported that the defense ministry had been damaged, and CNN'S John Holliman said he saw "one area of horrendous damage" around the Iraqi communications building. He spoke of satellite dishes on rooftops that appeared twisted from attack, saying, "Some seem melted . . . everything on that roof has been destroyed."

Holliman said all stores appeared to be closed. There were "clumps" of five to ten soldiers on many streetcorners . . . shaking their heads in amazement." The U.S. embassy was not damaged, he said.

Saddam appeared on Iraqi television today saying "God is great and victory is great and those who have attacked us will lose." Iraqi TV reported that Saddam had visited the Air Force command center. Holliman said it was believed Saddam's statement was recorded four hours earlier.

In a broadcast on state-run Baghdad radio five hours after the war began, a voice identified as Saddam's responded defiantly, calling Bush a "hypocritical criminal" and vowing to crush "the satanic intentions of the White House." Declaring that "the great duel, the mother of all battles has begun," the speaker said, "the dawn of victory nears as this great showdown begins."

At about the same time, Thomas Pickering, U.S. ambassador to the United Nations, told the U.N. Security Council that "Iraq can still avoid further destruction by unconditional, immediate and complete withdrawal from Kuwait."

At 8:42 a.m. EST today Holliman reported another bombing raid on Baghdad. Arnett reported the attacking U.S. planes were "still facing enormous antiaircraft fire."

While most of the offensive against Iraq remain concentrated in air attacks, U.S. military officials in Saudi Arabia said they had received reports of ground fighting by Saudi and Egyptiian forces against Iraqi troops on the Saudi-Kuwaiti border. The reports came from U.S. army reconnaissance teams, officials said. The Pentagon later denied the account, however, There were no reports that U.S. ground forces had been engaged yet in any combat.

Analysts attributed the fall in oil prices to perceptions that the outbreak of fighting in the gulf poses no immediate threat to the regions rich oil fields. In addition, the United States and other Western nations announced plans last night to release oil from strategic reserves, adding to already overstocked world supplies and holding down prices. Analysts warned, however, that prices could jump again if the war news turned sour for the allies.

U.S. officials expressed surprise and relief at the lack of any effective Iraqi military response in the early hours of hostilities. Despite U.S. anxieties that Israel would be drawn into the war by an Iraqi strike, Baghdad launched no attack on the Jewish state, officials said.

White House spokesman Marlin Fitzwater added, "We don't quite understand it. We are surprised that there was so little response this first night. But we are keeping in mind that this is only the beginning, and a guy with a million-man army is bound to respond."

The order to launch attacks marked the end of 5 1/2 months of diplomatic and economic efforts by the United Nations to force Saddam to roll back the forces he sent into oil-rich Kuwait on Aug. 2. It came less than 17 hours after the expiration Tuesday midnight of the U.N. deadline for Iraq to withdraw from Kuwait.

"Tonight the battle has been joined," Bush said in a brief, nationally televised address last night. "The United States, together with the United Nations, exhausted every means at our disposal to bring this crisis to a peaceful end." Iraqi President Saddam Hussein, Bush added, "met every overture of peace with open contempt."

An overnight Washington Post-ABC News Poll showed three of four persons interviewed approved of Bush's action. But several hundred demonstrators gathered in front of the White House before midnight, shouting, "Shame, shame, shame." More than a dozen were arrested amid rock and bottle throwing.

"The world could wait no longer," Bush said. Congress, which had agonized for months over backing Bush's hard-line stance, appeared substantially united behind the president's decision in the first few hours of the war. Republicans rallied quickly to his support, and so did some of his prominent Democratic critics.

Senate Armed Services Committee Chairman Sam Nunn (D-Ga.), a leader of the forces arguing that the economic embargo against Iraq should be sustained much longer before resort to arms, said last night, "I believe we will prevail in days or weeks. Saddam Hussein has made a tragic miscalculation."

Senate intelligence committee Chairman David L. Boren (D-Okla.), who shared Nunn's view, said there would be "unanimous support for our troops. . . . You'll see Congress play the role of supporting player."

It was not quite unanimous. Rep. Ronald V. Dellums (D-Calif.) said Bush's decision brought "an inestimable tragedy, for which it will take us a lifetime to atone."

Although there was no report of any major retaliatory action by Iraq, airline security was heightened around the world and in the nation's capital in response to earlier threats of Iraqi terrorism. FBI Director William S. Sessions said that some terrorists "have been identified as being in the United States," but that there have not yet been any incidents.

Although Cheney later said no Iraqi attacks had been launched against Saudi Arabia, Western diplomats and a Saudi official said one oil storage facility had suffered minor damage in a bombardment.

The allied attack, code named Operation Desert Storm, included extensive participation by 45 British Tornado jets flying out of Saudi Arabia and Bahrain, and 150 Saudi attack fighters, according to British and Saudi sources.

U.S. military officials said the air war against Iraq could last for three to four weeks before ground forces swing into action, although Bush may order brief pauses in the bombing to give Saddam an opportunity to sue for peace. The first phase of the air war targets Iraqi air defenses, command and control centers and Iraqi Scud missiles; U.S. military officials in Saudi Arabia said they believe many of the initial targets, including the Scuds, had been obliterated. There was no indication that Israel had been hit or that Israeli forces were involved in the war.

Israeli Air Force Col. Menachem Eynan told a radio reporter two hours after the air strikes began that "We're completely out of the picture. We're not involved, and we're not acting."

One objective of the attack last night and in the coming days, Pentagon sources said, is to sever Iraqi forces in Kuwait from central government and military control in Baghdad. Subsequent phases of the air war will seek to isolate those forces logistically -- by demolishing roads, railroads and supply lines -- and then begin destroying the forces themselves.

An unconfirmed report from a Kuwaiti resistance source inside Kuwait said that allied troops speaking English had been seen in a suburb of Kuwait City; some Kuwaiti citizens, the source added, took to the streets, honking their car horns, while some Iraqi soldiers tried to surrender.

A military spokesman in central Saudi Arabia said the first squadron of F-15E fighter bombers took off at 4:50 p.m. EST (12:50 a.m. Thursday in Saudi Arabia). Col. Roy Davies, chief maintenance officer at the base, said, "This is history in the making." Gen. H. Norman Schwarzkopf, commander of U.S. forces in the gulf, issued a statement to his troops urging them to be "the thunder and lightning of Desert Storm."

The first official notification of the attack came from grim-looking White House press secretary Fitzwater, who appeared in the White House briefing room just after 7 p.m.

Fitzwater said the attack is "designed to accomplish the goal of the U.N. Security Council resolution to get Iraq unconditionally out of Kuwait. I think the president's description of it a few days ago, that it would be swift and massive, would certainly apply."

Bush was in the small study off the Oval Office watching television reports from Baghdad as the attack began. With him were Vice President Quayle, national security adviser Brent Scowcroft and White House Chief of Staff John H. Sununu. Fitzwater was in and out of the office during that period.

As the sound of the bombing came over the television, Bush turned to his aides and said, "It's just the way it was scheduled," Fitzwater reported. He described the president as "very matter-of-fact and calm" as he watched the live reports from Baghdad.

Moments later he said to Fitzwater, "Marlin, you'd better go do it," the signal for the spokesman to give the official announcement.

Fitzwater said the decision was made over a period of weeks, with key meetings on several recent Sunday nights after the president returned from Camp David. A final planning meeting came Tuesday morning at the White House. But the decision had been implicit from the start.

From the day of Iraq's invasion, Bush had made it plain that he thought the stakes in the gulf were big enough to justify a war. He persuaded 28 nations to send forces to the gulf and mobilized support from past adversaries, including the Soviet Union, for an embargo that largely isolated Iraq from world commerce.

With the backing of an unprecedented range of countries, the United Nations Security Council passed 12 separate and increasingly severe resolutions demanding that Iraq roll back its lightning conquest of the tiny desert kingdom and its rich oil reserves. Last Saturday, Bush obtained what amounted to a congressional declaration of war, when the Senate narrowly and the House by a wider margin approved a resolution endorsing the use of "all necessary means" for expelling Iraq -- the same formulation the United Nations had used in its last ultimatum to Saddam.

Between 5 and 6 p.m. yesterday, congressional leaders began getting calls from Bush and other administration officials, informing them that hostilities were underway. Sen. Robert C. Byrd (D-W.Va.) recalled telling the president, "My Bible tells me that Our Heavenly Father . . . will reward us. I pray for you every night."

By 6:35 p.m., the leaders had received the written certification, required by the congressional resolution, saying that all diplomatic efforts had failed. As in his televised speech, Bush's letter put the blame for war on Iraq, which he said "has given no sign whatever that it intends to comply with the will of the international community. Nor is there any indication that diplomatic and economic means alone would ever compel Iraq to do so."

In addressing the nation from the Oval Office, Bush said that "while the world waited, Saddam Hussein systematically raped, pillaged and plundered a tiny nation -- no threat to his own. . . . While the world waited, Saddam sought to add to the chemical weapons arsenal he now possesses, an infinitely more dangerous weapon of mass destruction, a nuclear weapon."

Bush reiterated essentially the same case for military action that he has made since his Nov. 8 decision to double the size of U.S. forces in the gulf in order to provide offensive punch.

Secretary of State James A. Baker III, who logged thousands of miles in assembling the anti-Iraq coalition and futilely seeking a diplomatic solution, spent yesterday notifying allies of the decision to go to war.

The FBI refused to comment on reports that its agents were preparing in the event of hostilities to conduct searches of locations where suspected terrorists might be hiding and perhaps make some arrests.