Secretary of State Colin Powell on Monday said Saddam Hussein continues to defy the United Nations and time is running out for Iraq to comply with disarmament demands if it wants to avert war.

"Iraq's refusal to disarm...still threatens international peace and security," Powell said after U.N. inspectors presented their progress report to the Security Council at U.N. headquarters in New York.

Chief U.N. weapons inspector Hans Blix said Iraq has not genuinely accepted the U.N. resolution.

"Iraq appears not to have come to a genuine acceptance, not even today, of the disarmament that was demanded of it," Blix said at the beginning of his crucial report on 60 days of weapons inspections.

Powell said the inspectors' findings "came as no surprise."

He spoke at the State Department, after returning from a weekend trip to Switzerland where he addressed the World Economic Forum.

Bush administration officials insisted that an invasion of Iraq remained the president's last choice. This came as the White House prepared to release new evidence to support its charges that Saddam remains defiant and heads a regime with ties to the Al Qaeda terrorist organization.

A senior U.S. official said Powell will provide new evidence sometime after a meeting Friday between Bush and British Prime Minister Tony Blair. The official, speaking on condition of anonymity, said Bush was not expected to unveil any new evidence in Tuesday's State of the Union address, although he will outline the case against Saddam.

Meanwhile, Senate Democratic Leader Tom Daschle challenged the administration to show "proof to the world" that Iraq has weapons of mass destruction. It was part of an attack by the party's top leaders on the eve of the president's State of the Union address.

Powell said that the issue was "not how much more time the inspectors need to search in the dark. It is how much more time Iraq should be given to turn on the lights and come clean. ... Iraq's time for choosing peaceful disarmament is coming to an end."

Earlier Monday, Iraq's foreign minister accused Powell of a "series of lies" for asserting while in Switzerland that Iraq had not cooperated with U.N. arms monitors.

Foreign Minister Naji Sabri accused the United States of using the weapons issue as a pretext to seize Iraq's oil.

Powell said being called a liar by the Iraqi official "will not cause me any loss of sleep."

The secretary of state demanded that Iraq give a full accounting of missing anthrax, the nerve gas VX and other chemical and biological weapons materials. He also said Iraq must say where it is hiding mobile biological laboratories. And he said, if Iraq were really interested in complying, "they would drive them up and park them in front of (the inspection team's headquarters)."

He said the whereabouts of forbidden agents wasn't just a trivial or historical question. "It is essential for us to know what happened (to) this deadly material."

Powell insisted that Iraq continued to conceal "vast quantities of lethal materials" and the weapons to carry them.

"What we can't do is just keep kicking the can down the road," Powell said.

Earlier, John Negroponte, the U.S. ambassador to the United Nations, said in New York that the inspection reports showed that Iraq was "not cooperating unconditionally."

White House press secretary Ari Fleischer said President Bush is not eager for war. "He hopes it can be averted, but he is also clear about the fact that one way to save American lives is to prevent Saddam Hussein from engaging in something that can be far, far worse than the price that we've already seen on Sept. 11."

The White House reacted coolly to U.N. Secretary-General Kofi Annan's plea for longer weapons inspections in Iraq.

Fleischer said the U.N. inspectors "are doing their best job." But he added that "the more time they get, the more they're getting the run-around."

Fleischer renewed accusations that the United States believes there are ties between Iraq and Al Qaeda.

The spokesman said Al Qaeda prisoners have revealed that Iraq provided chemical weapons training to Al Qaeda. Asked if Al Qaeda terrorists visited Iraq for training or if Iraqis went to Afghanistan, he said, "We have concerns about both."

He provided no details or evidence, but suggested Al Qaeda was seeking a new haven after the U.S.-led attack on Afghanistan.

He again declined to rule out American use of nuclear weapons against Iraq. "It is a serious concern about Saddam Hussein being armed with chemical and biological weapons and taking out millions," Fleischer said. "These aren't toys. These are weapons that inflict massive, gruesome casualties."

The European Union remained split into two camps, with Britain siding with Washington in advocating military action sooner rather than later. Italy, Spain, Portugal, Denmark and the Netherlands largely agree.

But France and Germany, joined by Austria, Belgium, Sweden and Luxembourg, insist that war can only come after a fresh U.N. Security Council resolution.

The Associated Press contributed to this report.