President Bush said yesterday that he would raise no objection to the new Iraqi government welcoming Moqtada Sadr, a leader of the anti-American insurgency in Iraq who is wanted by U.S. authorities in the killing of a fellow cleric.

Bush, fielding questions in the Rose Garden with Afghan President Hamid Karzai, said he would not oppose the wishes of the Iraqi leadership, which has encouraged the man Bush branded a "thug" to form a political party and compete in next year's elections.

"The interim Iraqi government will deal with al-Sadr in the way they see fit," he said. "They're sovereign. When we say we transfer full sovereignty, we mean we transfer full sovereignty. And they will deal with him appropriately."

Bush also said the administration is in talks about relinquishing deposed Iraqi president Saddam Hussein to the interim Iraqi government once security arrangements can be made.

The offers to hand over Hussein -- which had long been expected -- and to relinquish any claim to Sadr -- which represents a significant softening of Bush's position -- are intended to demonstrate that the U.S.-led coalition occupying Iraq is serious about the transfer of political sovereignty to Iraqis on June 30.

In Baghdad, Iraq's interim president, Ghazi Yawar, welcomed Sadr's decision to form a political party to compete in next year's elections, calling it a "smart move."

In his response to questions in the Rose Garden, Bush said the administration is working with the new Iraqi government on "the appropriate time for the transfer of Saddam Hussein" to Iraqi authorities, which he said would happen when there is "appropriate security." Asked about the broader matter of the U.S. intent to keep control over Iraqis detained by coalition forces, Bush answered by discussing the specific case of Hussein. "I just want to make sure that when sovereignty is transferred, Saddam Hussein stays in jail," he said.

Bush's press secretary, Scott McClellan, said last week's U.N. Security Council resolution gives the U.S.-led authority in Iraq the power "to detain individuals in Iraq after June 30th and to detain new individuals where it is necessary for security purposes."

As Bush asserted that Iraqis would decide the fate of Hussein and Sadr, he also renewed an assertion that Hussein had longstanding ties to the al Qaeda terrorist network, one of the justifications underpinning the Iraq war. The alleged link between Hussein and al Qaeda has taken on more importance with the failure to find weapons of mass destruction. Vice President Cheney, outlining al Qaeda's activities in various countries, said in a speech in Orlando on Monday that Hussein "had long-established ties with al Qaeda." Bush, asked yesterday if he would qualify that claim or cite evidence to support it, defended Cheney's assertion, citing the terrorist Abu Musab Zarqawi.

"Zarqawi is the best evidence of connection to al Qaeda," Bush said during his appearance with Karzai. "He's the person who's still killing. Remember the e-mail exchange between al Qaeda leadership and he, himself, about how to disrupt the progress toward freedom?"

Zarqawi, a Palestinian born in Jordan, runs his own terrorist network, al Tawhid, which has been active in Iraq. In October 2002, Bush described Zarqawi as a "very senior al Qaeda leader."

This February, in a statement to the Senate Armed Services Committee, CIA Director George J. Tenet described Zarqawi's network among other groups having "links" to al Qaeda but with its own "autonomous leadership . . . own targets [and] they plan their own attacks." Although Zarqawi may have cooperated with al Qaeda in the past, U.S. officials say it is increasingly clear he had been operating independently of Osama bin Laden's organization.

The e-mail exchange that Bush referred to yesterday was Zarqawi's January 2003 letter to bin Laden lieutenants, intercepted at the Iraqi border. Zarqawi said that if al Qaeda adopted his approach in Iraq, he would swear "fealty to you [bin Laden] publicly and in the news media."

Bush's appearance with Karzai, who wore a flowing green robe, was meant to emphasize the progress in Afghanistan since the overthrow of the Taliban, although elements of the Taliban and al Qaeda are still at large in parts of the country. "Three years ago, the Taliban had granted Osama bin Laden and his terrorist al Qaeda organization a safe refuge," Bush said. "Today, the Taliban has been deposed, al Qaeda is in hiding, and coalition forces continue to hunt down the remnants and holdouts." When Bush spoke of advances by women and children, Karzai replied "yes" to each.

Bush offered additional help with democratic changes, textbook printing, cultural exchange, trade and small businesses. Bush did not mention Afghanistan's problem with drug cultivation, but Karzai said "the Afghan people are adamant to fight this menace, to end it in Afghanistan and receive your help in that."

Before meeting with Bush, Karzai urged a joint session of Congress to provide more support for Afghanistan, saying democracy there would require "accelerating the reconstruction of Afghanistan through long-term commitment." Karzai was less direct in his public appearance with Bush. "We are looking forward in this relationship to a stronger relationship," he said.

Several lawmakers have said that Afghanistan needs more help from both the United States and NATO or it will slip further into violence and disorder.

The Afghan leader defended his talks with warlords, saying "no deals have been made" with them. "We don't call them warlords," he said. "Some of those people are respected leaders of the Afghan resistance, some of them are former presidents, and we respect them in Afghanistan."

Staff writers Mike Allen and Walter Pincus contributed to this report.