America is facing its most decisive moment in Iraq -- without an exit. Graham Usher reports from Baghdad Once more pledging victory in Iraq, George Bush announced on Tuesday that he had "directed our military commanders to make every preparation to use decisive force if necessary to maintain order and to protect our troops". He was addressing his people for the first time after 10 days of revolt against the American "project" in Iraq: a confrontation that has so far cost the lives of 900 Iraqis and 80 American soldiers and witnessed fighting in Falluja, Najaf, Baghdad and just about every other major Iraqi city. "The consequences of failure in Iraq would be unthinkable," he said. Failure is manifest: and the consequences are already sending tremors across the world. The latest is a burgeoning hostage crisis. Iraqis have been experiencing kidnappings ever since the statues fell last year, most of them criminal, some a grisly settling of political scores. But in the outrage caused by the assault on Falluja the net is being cast to envelop foreigners -- military, civilian and other. At the last count some 40 people had been abducted or reported missing. Several have been freed, following interventions by the Iraqi Islamic Party (IIP) and the Muslim Scholars Union (MSU), two Sunni organisations whose political stature is increasing by the day. Others are being held as ransom for the withdrawal from Iraq of the nations whose passports they carry. Four have been killed. But all are having the desired political effect. Russia and France have told all their nationals to leave Iraq; other "coalition" countries are thinking of doing likewise. Baghdad is now a city of fear for most foreigners, with few leaving its limits and many staying put behind fortified hotels. "I don't blame you -- it's lawless out there," said one local. But Bush's greatest challenge lies in pacifying the two cities where the revolt was born -- the Sunni resistance bastion of Falluja and the Shias holy shrine city of Najaf. On 9 April American marines bowed to international and domestic opinion, calling a halt to four days of "offensive operations". The guerrillas defending Falluja used the reprieve to evacuate thousands of civilians and reinforce their defences. Refugees speak glowingly of the "mujahidin", a "popular" resistance led by former military officers, organised along geographic and tribal lines and composed of armed "grandfathers, shopkeepers, young men and even boys". They also speak of mass graves, aerial bombardment and carnage. According to hospital sources in the city more than 600 were killed, some 1500 were wounded and 7,000 lost their homes during the siege. The Americans too utilised the lull, bringing up another battalion to the city's outskirts, and fighting a deadly attrition with the guerrillas to keep supply roads open and "men of fighting age" ensnared. There have also been negotiations of a sort, mediated by the MSC and IIP, including members of the Interim Governing Council (IGC). But the positions appear unbridgeable. The Americans are demanding the guerrillas lay down their arms, relinquish control of the city to the Iraqi police forces and hand over those responsible for the killing of four US contractors on 31 March. The guerrillas are insisting on withdrawal. Neither side can concede without recognising the political legitimacy of the other. A similar stand off simmers in Najaf. Having taken control of the city last week, forces loyal to the Shia cleric Muqtada Al-Sadr have ceded positions to the Iraqi police and other Shia militias -- a withdrawal that also occurred in Karbala. Al-Sadr is signalling some kind of political compromise in which the murder charge against him and the future of his Mahdi militia would be decided by Najaf's Shia religious establishment. But the Americans -- publicly at least -- are promising a "sustained campaign until Muqtada Sadr turns himself in, or his militia is destroyed", in the words of Ricardo Sanchez, the chief US military commander in Iraq. He has mobilised 2,500 troops around Najaf, suggesting that the Americans really are ready to risk the bloodiest of contests in the Shias' holiest of cities. Qais Al-Khazali, Al-Sadr's spokesman in Najaf, spelled out the consequence of an invasion. "At the moment they [the Americans] are facing an uprising, but if they harm Al-Sadr a massive revolution will take place all over Iraq." Therein lies Bush's dilemma. Should he resort to force as a demonstration of "American resolve", he will cause greater casualties, bring about a further collapse of the IGC and the Iraqi police forces and generate outrage throughout the Arab and Muslim worlds. Should he turn to political solutions, he will be granting legitimacy to those Iraqi forces most opposed to the occupation and fuel the nascent nationalism they are starting to embody. Whichever road he takes will mean a kind of defeat. But it is now simply too late for victories and for one basic reason, says Iraqi political analyst, Wamid Nadhmi: "Whether through stupidity or ill thought-out design, the Americans have created a reality their entire project was designed to suppress -- a revolt that expresses Iraqis common Arab and Muslim identity."