A rapid transfer of power to the people of Iraq could take place in the New Year, the foreign secretary has signalled.

Amid US fears about the escalating casualty count, Jack Straw said the handover could be accelerated.

In a bid to calm nerves, the prime minister pledged on Wednesday that Britain will not pull out of the country.

Tony Blair told MPs that leaving Iraq in the face of terrorist action would be "the worst thing we could do".

"Let's be very clear as to what is happening in Iraq. It is not America and coalition forces that are trying to bomb the UN out of Baghdad," he told the Commons.

"We have got to stick with this and see it through."

"The reality of the situation is that we are the ones trying to make the lives of Iraqis better."

The comments came amid claims that the coalition may be set to rethink the post-conflict transitional strategy.

Ministers had initially hoped to win broad support for a new constitution agreed by the governing council before moving to democratic elections.

President Bush, who arrives in the UK for a state visit next week, is said to be concerned that the security crisis in Iraq could undermine his 2004 re-election campaign.

But Washington has vehemently denied that the president is now looking for an exit strategy.

Speaking on Wednesday Straw said there was a determination in both London and Washington to make progress on the issue.

"We want to hand over power to the Iraqi people as quickly as possible," he told the BBC.

"And it could well be that we hand over power to the Iraqis more quickly than planned."

But he denied that the coalition would turn their backs on the people of Iraq.

"However, we as the coalition, the United Kingdom and United States as literally the occupying powers, have clear responsibilities for security in Iraq and we have to meet those responsibilities," he said.

The foreign secretary confirmed the current approach relied on building up self-government through the governing council.

"What you have to do is keep that constantly under review. Up to now that view has been, you make the agent of that process the governing council," he said.

"There have been suggestions not just from the United States and ourselves but from our other partners that there may be other ways of achieving that.

"The analogy used... was the Afghanistan model. All of those models have to be looked at because there is this deadline of December 15 which has been set by the United Nations by which more detailed plans have to be produced."