Mr Schroeder and Mr Powell managed to find common ground

Speaking after talks in Berlin with United States Secretary of State Colin Powell, Mr Schroeder said "the sanctions that were levelled at the time [in 1990] no longer make sense in light of developments [in Iraq]".

Mr Powell said he was "pleased with the chancellor's commitment" to a US draft resolution to end the sanctions, which is currently being discussed by the United Nations Security Council.

However, Russia and China have called for major changes to be made to the draft, with Russia's Deputy Foreign Minister Yuri Fedotov saying that "in its present state the draft resolution creates serious problems for our countries".

The talks today... showed that we are well on the way to an agreement Joschka Fischer, German foreign minister Iraq sanctions: Q & A

"We believe that parts of this draft resolution require serious alteration," Mr Fedotov said after talks with his Chinese counterpart Yang Wenchang.

Correspondents say Russia is anxious to secure UN involvement in Iraq to avoid losing billions of dollars owed by Baghdad and invested in Iraqi oil projects.

Battle to rebuild

Mr Powell said that the co-operation he had seen from Germany, a fierce opponent of the war with Iraq, inspired confidence that the members of the Security Council could come to a swift agreement over the resolution.

The secretary of state, who later held talks with his German counterpart, Joschka Fischer, said he expected discussions on the draft resolution to conclude by the end of next week.

Mr Fischer said the US draft resolution "is a good basis for our discussions and the talks today also showed that we are well on the way to an agreement".

There is a diplomatic battle over the rebuilding of Iraq

Mr Powell and Mr Fischer said the relationship between the US and Germany was close, despite the recent rift over whether to go to war with Iraq.

The BBC's Ray Furlong in Berlin says Mr Schroeder has not spoken directly to President George W Bush since November, and their relationship is said to be irreparable.

But Mr Powell - the most senior US official to visit Germany since the country's elections last September - said the latest talks were open and "candid".

Veto threat

The battle to win UN Security Council support for the draft resolution is not yet won. Along with Russia and China, France is said to be reluctant to lend its support.

All three countries have veto powers in the Security Council.

There was much concern during the Council's meetings earlier this week about the extent of the role the UN might play in Iraq, particularly in establishing a new administration.

IRAQ'S DEBT Could total almost $400bn: $199bn in Gulf War compensation claims $127bn debt, including $47bn interest $57bn owed for pending contracts - mostly to Russia Source: US Center for Strategic and International Studies

The BBC's UN correspondent, Greg Barrow, says the new text goes some way to addressing Russia's concerns and strengthens the role of the UN in post-war Iraq - but only slightly.

Under the new draft a UN special co-ordinator would work "intensively" with the occupying powers in helping to restore and establish national and local institutions.

Diplomatic sources say one significant change has also been made in relation to funds generated by Iraqi oil sales.

The new draft concedes that, once an internationally recognised government is established in Iraq, such funds could be open again to claims from nations or entities owed money as a result of contracts established before the war.