Saddam Hussein offered to step down and go into exile one month before the invasion of Iraq, it was claimed last night.

Fearing defeat, Saddam was prepared to go peacefully in return for £500million ($1billion).

The extraordinary offer was revealed yesterday in a transcript of talks in February 2003 between George Bush and the then Spanish Prime Minister Jose Maria Aznar at the President's Texas ranch.

The White House refused to comment on the report last night.

But, if verified, it is certain to raise questions in Washington and London over whether the costly four-year war could have been averted.

Only yesterday, the Bush administration asked Congress for another £100billion to finance the conflicts in Iraq and Afghanistan.

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