President Bush mourned the first American soldier to die from hostile fire in Afghanistan and warned anew that more deaths will follow as the war against terrorism enters a more dangerous phase.

"This conflict will have its casualties as we pursue our objective," Bush told some 5,000 people at a town-hall gathering here Saturday.

"We are now in a dangerous phase of the first front in the war against terror," Bush said. "Because of the terrain in Afghanistan and because there's still hostile elements, we're pursuing our objective cave by cave."

Sgt. 1st Class Nathan Ross Chapman, 31, died in eastern Afghanistan Friday during the anti-terrorism campaign that began Oct. 7. An unidentified CIA officer was seriously wounded in the ambush, U.S. officials said.

"I can assure the parents and loved ones of Nathan Chapman that he lost his life for a cause that is just and important," Bush said.

Though aides said Bush would focus his remarks near Los Angeles on the economy, his speech also served as a three-month update on the war against terrorism. "We have made incredible progress," Bush said. "The Al Qaeda, the Usama bin Laden group, can't claim Afghanistan as a haven anymore." He said the government was "cutting off their money."

The campaign against terrorism, he said, represents a "defining moment in history."

Though he has faced criticism for a go-it-alone approach on many global issues, Bush called Saturday for a "massive coalition that says terror will not stand."

Bush, who will submit his new year's budget after his Jan. 29 State of the Union address, suggested big wartime increases for the military. "The defense of this nation is the number one priority of the budget of the United States," he said to cheers from an audience that included many in uniform.

More than 300 suspected Taliban or Al Qaeda members were in U.S. custody Saturday, said Lt. Col. Martin Compton, a spokesman for U.S. Central Command. Soldiers were guarding 275 prisoners at the base in Kandahar, 21 at Bagram air base north of Kabul, and one in the northern city of Mazar-e-Sharif, Compton said. Another nine prisoners, including American Taliban John Walker Lindh, are being held on the USS Bataan in the Arabian Sea.

Bush also responded to critics of anti-terrorism measures his administration has taken such as military tribunals for foreigners and letting investigators monitor phone calls and mail between some terrorist suspects and their defense lawyers.

"We respect people's constitutional rights, and we will continue to do so, but if we think somebody is fixing to hurt the American people, we will move in this country," Bush said.