In an hour-long appearance, Prime Minister Ayad Allawi (search) shook many hands, let out hearty laughs, bear hugged some and then got down to business, giving a keynote address that lasted 20 minutes and fielding questions for another 40.

Iraq's interim prime minister is showing signs of a man who has come to his own and maybe even enjoying what he does — running a country still recovering from the horrors of a 35-year ruthless dictatorship, being torn apart by a deadly insurgency and whose delicate racial and religious makeup looks close to breaking up at times.

In his Monday evening appearance in the 100-member National Council (search), an informal Allawi put on display some of the qualities that could earn the secular Shiite politician many years at the helm — balancing his trademark tough talk with conciliatory words, blending classical Arabic with the Iraqi vernacular to avoid being seen as aloof and projecting the image of a people's man.

He did not attempt to downplay the magnitude of the challenges facing his U.S.-backed government. But he peppered his remarks with a hopeful phrase here and a morale-lifting word there.

"The danger is that there are expectations of his interim government and he won't be able to deliver what he needs to deliver," said Rick Barton, a post-conflict specialist from Washington's Center for Strategic and International Studies (search).

"It's very doubtful, for example, that he will bring complete peace to Iraq," he said.

Allawi's main tactic has been a carrot-and-stick approach to the insurgents.

On Monday, he held out an olive branch to insurgents in control of some Sunni areas, but also put them on notice that if they ignored his overtures he was not afraid to use force against them.

He also spoke of a day "soon" when Iraqi forces take over security from a U.S.-led multinational force. In a bid to turn public sentiment against the insurgents, Allawi told his audience that violence has so far cost Iraq $7 billion in lost oil revenues alone.

"This money could have been used to build schools, hospitals and create jobs," he said. "This is the government of everyone: Arabs, Kurds and Turkomen ... Let us be one hand in the face of terrorism ... We will not be lenient over the issue of security."

Allawi announced plans for Iraqis to trade guns for cash, extending a program underway now in the Shiite quarter of Baghdad nationwide. His remark was made one day after the prime minister showed a populist touch in the huge Shiite slum Sadr City, chatting amicably with a group of smiling children and posing for pictures with a local soccer team.

It's all a far cry from the Allawi of a few weeks ago when he almost constantly wore a frown. Rumors made the rounds in Baghdad then had him personally shooting dead suspected terrorists in police custody.

Allawi's tough guy image, it was said at the time, suited many Iraqis who wanted a strong in the hope that this would be a deterrent to the terrorists and criminals stalking them, often with deadly consequences. It could only enhance the prime minister's growing popularity now that Iraqis see him with grinning children and laughing on live television.

Allawi also has grown bolder after he spent the first two months of his tenure talking tough but not doing much to back up his words.

Over the past three weeks, however, he gave the nod to large U.S.-Iraqi military operations against insurgent strongholds in Sunni areas.

The move against insurgents in Samarra, Fallujah and troubled areas just to the south of Baghdad are a big gamble because they could anger the powerful Sunni Arab minority to an extent of boycotting the January vote, thus robbing it of much of its legitimacy.

Allawi is a member of Iraq's Shiite majority, a community that had long been oppressed by the Sunni Arabs. Using America's military might to fight the insurgents could reinforce the notion that Shiites will do anything for the election to go ahead so they can formalize their status as postwar Iraq's most powerful group.

Allawi is widely expected to run in the January election and seek a new term as prime minister. His party, the Iraqi National Accord, has opened talks to form an electoral alliance with other political groups that have returned to Iraq from exile after Saddam's ouster.

The 58-year-old former Baathist is seen by many Iraqis as less than an ideal leader given his past links to the CIA and the three decades he spent in exile abroad.

But a Western diplomat who left Iraq recently after a year-long posting in the Iraqi capital said Allawi was doing a "reasonable job" when all he could do is to try and tackle the security situation.

"As for all the other issues, it's all about presentation and not performance since the government's hands are tied and its term in office is only seven months," the diplomat, who has met Allawi numerous times, said on condition of anonymity.

Under an interim constitution, Allawi's government is not allowed to introduce any legislation that could have an impact on Iraq beyond its seven-month term. The government produced by the January vote will be in office for just under a year. Another general election will be held after a permanent constitution is drafted and adopted by Oct. 15.