LONDON/BAGHDAD/NEW YORK: In a leafy pavement cafe in Baghdad's Karrada district on Saturday, the men drinking tea in the shade and debating amiably were adamant about one thing: no one would ever accept an American- appointed politician to lead Iraq, especially one with close ties to the CIA.

There is a deep distrust of the Iraqi Governing Council as an instrument of the US occupation and equally deep distrust of its choice as the first prime minister of the new government to take power on June 30: Iyad Allawi.

On Saturday the troubled issue of sovereignty in Iraq was in turmoil as it emerged that it was not only ordinary Iraqis who had been sidelined in Allawi's appointment, but the United Nations, Downing Street and even parts of the Bush administration.

Despite efforts to put the best gloss on Allawi's nomination, it was clear that a UN process to select an Iraqi leader had largely collapsed, placing the decision in the hands of the former exile groups that dominate the governing council - an outcome the UN had said it was determined to avoid.

The UN, Britain and America have long insisted that the process - headed by UN envoy Lakhdar Brahimi - was as crucial as the handover of sovereignty.

The intended aim was to decide only after the widest consultation, following Mr Brahimi's insistence that candidates should not simply be confined to a council handpicked by the US, often from groups with little popular support within Iraq.

Mr Brahimi himself had stressed he would prefer a technocrat from outside a body where 18 out of the 25 members hold foreign passports, including Allawi who is a British citizen. Yet after powerful lobbying among its members, Mr Allawi was nominated on Friday.

He heads the Iraqi National Accord and is a long term protege of the CIA and MI6 who has spent much of his life in exile. The White House appeared to struggle on Saturday as it defended the way he was selected, claiming he had emerged as a "popular candidate" although he is little know by Iraqis.

"The United States did not pick anybody as its candidate," an official said: "But when we saw the political momentum that he was generating day by day, we thought he would be an excellent prime minister."

Downing Street, which was left out of the loop on the appointment, put a brave face on it, saying the government would not expect to have been consulted, despite its officials having been in touch with Mr Brahimi on a daily basis. "It was a matter for the UN and interim coalition government, not for the British or American governments," said a senior Downing Street source. "It is Brahimi's job to work with them to produce a recommended team of people. The last thing that would be appropriate is saying, 'We prefer X rather than Y'."

The emergence of Mr Allawi, an enthusiastic former Baathist turned opposition leader, followed the blocking by him and other council members of Mr Brahimi's preferred choice, Hussain Shahristani, who had been offered the job but was forced to withdraw.

Mr Shahristani, 62, a scientist jailed by Saddam for more than a decade after he refused to help build nuclear weapons, had not been active in Iraq's internecine opposition exile politics.

Council members "feel they are a kind of club, and this was a person who is outside their club. He couldn't be a candidate because he cannot get the support of this club," an aide to Mr Shahristani told the Washington Post. His withdrawal last Thursday left the field open to Mr Allawi, who had been lobbying furiously for the job.

Yet it is what happened next that is most murky. Although Allawi's name is understood to have been on the list of candidates under consideration by Brahimi, the UN envoy appears to have been bounced into accepting it by joint pressure from the US and the council.

Although some officials in Baghdad were expecting the council to leak Mr Allawi's name on Friday, the news appears not to have reached London, the UN or the US State Department where officials were caught on the hop by the an announcement that lacked the imprimatur of the world body.

It caused a flurry of hurried phone calls between Mr Brahimi, his boss Kofi Annan and the UN in New York. "This is not how we expected things to happen," said one UN official in a mark of UN's unhappiness with the way that it felt it had been outmanoeuvred.

Mr Annan's spokesman , Fred Eckhard, refused numerous opportunities to say the UN, Brahimi or Annan "welcomed" the decision. Instead he said they "respected" it. "I want to stick very carefully to the wording," Mr Eckhard said.

The messy announcement is not simply a question of amour propre for the UN. British officials regarded it as crucial in persuading ordinary Iraqis that a dramatic change was in train with the transfer of sovereignty. Many observers now fear that yet another critical opportunity has been thrown away.

Allawi faces a tough job in trying to persuade already dubious Iraqis that his appointment was not simply stitched up between the US and self-interested parties on the council, who will hold senior positions in the new government, despite promises from Brahimi that it the interim government and contain fresh faces.

His task will be made doubly difficult by his 20-year exile from Iraq before the fall of Saddam, his links to MI6 and the CIA and his previous enthusiasm for Baathism despite surviving a murder attempt by agents of Saddam.

Mr Allawi and his Iraqi National Accord are also - in other ways - as controversial as his long-time enemy in Ahmad Chalabi and the rival Iraqi National Congress, which has dramatically fallen from grace in Washington amid accusations that it knowingly fed incorrect intelligence to the US to bolster the case for war.

The INA itself has been accused of providing the notorious intelligence to MI6 that Saddam could launch weapons of mass destruction against Britain in 45 minutes, and Mr Allawi himself has attempted to assert that Saddam and the leader of the 9/11 hijackers, Mohamed Atta, were working together.

But faced with feuding parties in Iraq officials have told The Observer that the secular Allawi, who has strong support among former members of the military and has promised to restore security in Iraq as a priority, was the "least bad of all the options".

The turmoil over his appointment came as US soldiers and fighters loyal to a radical Shia cleric exchanged gunfire in the southern city of Kufa, threatening the plan to end the bloody, seven-week battle in the Shia holy cities of Najaf and Kufa

Explosions could be heard near Kufa's main mosque, where members of Muqtada al-Sadr's militia had taken up positions. Militia members accused US troops of provoking the gunfight by approaching the city centre. -Dawn/The Observer News Service.