Baghdad's self-proclaimed rulers said Wednesday they will use Iraqi government funds to pay all state employees their salaries this month -- with a 1,000-percent raise -- and took credit for progress in getting power, water and hospitals back up and running.

They also claimed the U.S. Army recognizes their authority, meets with them daily and even drove them from Kuwait (more news | Web) to Baghdad (more news | Web) in American military vehicles.

The United States, however, denies supporting or meeting with the group and says it rejects the claims of the man who has appointed himself "mayor" of Baghdad, Mohammed Mohsen al-Zubaidi (more news | Web).

One U.S. commander in Baghdad went further -- warning that al-Zubaidi and his followers will face arrest if the returned Iraqi exile pushes too far with claiming authority -- particularly if he seeks to form an armed security service.

Lt. Col. Alan King, commander of the 422nd Civil Affair Battalion in charge restoring Baghdad to normal, said he had seen reports al-Zubaidi was distributing weapons and uniforms to followers.

"Anyone in uniform working with al-Zubaidi will be arrested as a combatant," King said. "The only people in Baghdad allowed to wear a uniform ... is who we authorize."

Al-Zubaidi "is running Baghdad as much as Saddam Hussein is," King said.

Jay Garner, a retired U.S. general, is charged with restoring services in Iraq while an interim government is formed.

But al-Zubaidi seemed to be getting ahead of those plans, consolidating his claim to Baghdad's governorship -- and over the entire country, taking funds from national government coffers for his own embryonic administration.

At a town hall-style meeting Wednesday, al-Zubaidi promised government employees they would be paid on April 30, and that their salaries would be increased tenfold. He said the funds would come from a Finance Ministry account at the Iraqi National Bank.

"We ordered the finance committee to raise wages after hearing about the reserves we have," he told an assembled crowd in an auditorium of the Sheraton Hotel. "We are raising salaries 10 times, both civilian and military."

Al-Zubaidi proclaimed "the era of Saddam Hussein is over" and said the former government had abused Iraqis.

"Saddam's policy for the Iraqi people was based on the idea that if you make your dog hungry, it will follow you," he said.

In an interview with The Associated Press, al-Zubaidi's top deputy, Gen. Jawdat al-Obeidi, said the general manager of the Iraqi National Bank -- as well as directors of other banks -- were giving the self-proclaimed Baghdad government funds deposited in their institutions.

"We don't have any legal government. It's just a local committee," he said.

Al-Obeidi, a former Iraqi army general who for the last four years has run a limousine company in Portland, Ore., said it wasn't only the banks that recognize his government, but the U.S. military as well.

"We are working as a team with the Americans. We have a meeting with them every day," he said.

He said his team met with U.S. Army civil affairs officers as well as military commanders, and the meetings were held without news media present at U.S. insistence.

The U.S. government has consistently denied having any dealings with al-Zubaidi or his administration. King said there had been no meetings with al-Zubaidi's group and that he had passed the message to al-Zubaidi that "he was not the mayor, mayors are elected, not self-appointed."

Garner's staff will hold its own town meeting with local leaders on Thursday to discuss Baghdad's future, and al-Zubaidi is not invited, King said. He said if al-Zubaidi breaks any laws he will be arrested.

"He personally hasn't done anything illegal that I know of, if his people continue to break the law, they will be taken from the streets," King said.

Brig. Gen. Vincent Brooks, deputy operations director for the U.S. Central Command in Qatar, said last week that al-Zubaidi was "an emerging leader and deserves some attention." But he said "until full processes are in place ... that is not a recognized mayor of Baghdad."

But whether real or imagined, al-Zubaidi's ties to Iraq's de-facto U.S. rulers appears to be serving him well.

"Al-Zubaidi alone will not be able to do things for Iraq, but with the Americans he can," said Qassem al-Badri, a 40-year-old engineer attending al-Zubaidi's meeting Wednesday. Told the Americans say they don't recognize al-Zubaidi, he said: "I don't believe them."

Dozens of Iraqi tribal chiefs, religious leaders and ordinary citizens crowded into an assembly hall to hear al-Zubaidi's opinions.

Al-Zubaidi acted as if he was Iraq's ruler, appealing for law and order and promising to solve problems. He bragged about the electricity, water and hospitals slowly coming back online, although it was unclear what, if anything, he had to do with the progress.

"I know you are suffering. I am one of you," he said. "You have been patient under a dictatorship for 35 years. Express yourselves! Be active! Love one another!"

But in an indication of how difficult his job will be -- if he manages to hold onto it -- people gathered in the auditorium showed little unity.

"All of us are suffering!" one man yelled.

"We need everything -- flour, electricity, gasoline!" screamed another.

One woman in a black chador stood and appealed to al-Zubaidi to help her with a different problem:

"My TV is broken!" she called. "You are talking about sewage, water and electricity, but who will fix my television?"