Prime Minister Tony Blair has insisted that war with Iraq is not inevitable and could still be avoided.

But he argued that while UN weapons inspectors should be "given time" to do their job, if Saddam Hussein refuses to co-operate with them he must be disarmed by force.

If he co-operates with the inspectors ... then the issue is over Tony Blair

Mr Blair stressed that the UN must carry through its threats against Iraq or it will be perceived as weak by countries such as North Korea, which is withdrawing from the Nuclear Non-Proliferation Treaty.

But Liberal Democrat leader Charles Kennedy claimed "we are being bulldozed into a war not of our choosing".

His comment was made as a report from the UK's Institute of Directors (IOD) suggested that a successful short, sharp war against Iraq would be the best outcome for the US economy.

'Tell the truth'

The study concluded that a prolonged Gulf War could send oil prices soaring to $80 a barrel, make the US stock market fall by 30% and the country's gross domestic product shrink by 2%.

But a short, successful war would result in oil prices quickly falling back by about a third to $20 a barrel and the US economy growing by 2.9% this year.

On Sunday, US Secretary of State, Colin Powell told business and political leaders at the World Economic Forum, in Switzerland, that Saddam "should tell the truth and tell the truth now".

In the UK, Mr Blair acknowledged that the British public could not see an immediate threat from Iraq, but he argued that it was only a matter of time before international terrorism and weapons of mass destruction came together.

Full access

Mr Blair told BBC's Breakfast with Frost that a peaceful outcome to the Iraq situation rested solely with Saddam Hussein.

"War is not inevitable, it depends on Saddam," he said.

"If he co-operates with the inspectors ... if he co-operates fully with them, in allowing them not just access but telling them what material he has and allowing them to shut it down and make Iraq safe and free of weapons of mass destruction, chemical, biological potentially nuclear, then the issue is over, but he is not doing that at the moment."

Powell: Saddam Hussein should 'tell the truth now'

Mr Blair said the UN weapons inspectors "have got to be given the time to do the job".

"If the inspectors are able to do their job, fine, but if they are not able to do their job, then we have to disarm Saddam by force."

Mr Blair said the weapons inspectors were "not detectives" and should not be engaged in a "game of hide and seek with Saddam".

The prime minister did not believe it would take the inspectors months to find out whether Saddam Hussein was co-operating or not, "but they should have whatever time they need".

Terror link

He indicated that the kind of weapons of mass destruction that are being made and hidden in Iraq, were the sort of weapons that are being traded across international barriers.

The UK has assembled a large taskforce

The only way war would take place without a second UN mandate was if the inspectors reported that Saddam was refusing to co-operate and a member of the Security Council exercised its right of veto, he said.

Mr Blair defended his decision to stand shoulder to shoulder with the US on Iraq.

"I think when America is taking on these tough and difficult questions, our job is to be there - not be there at any price ... not simply there as fair-weather friends," he said.

'Need convincing'

Tory leader Iain Duncan Smith backed calls for a second UN resolution before military action, but said the British public still needed to be convinced.

"I believe that the government has yet to properly make that case to the British people about why ... these weapons of mass destruction could be used against British people both at home or possibly abroad," he told Sky's Sunday with Adam Boulton.

An initial report by Hans Blix, the head of the inspection team, is due to be presented to the UN on Monday.

It is expected to accuse the Iraqis of failure to co-operate but will not provide damning evidence of nuclear or bio-chemical weapons production.