Updated

One day into his formal bid for the U.S. presidency in 2008, Illinois Sen. Barack Obama slammed Australian Prime Minister John Howard Sunday for suggesting terrorists are awaiting the election of a Democrat — specifically Obama — to the White House.

"I think that it's flattering that one of George Bush's allies on the other side of the world started attacking me a day after I announced" my candidacy for president, Obama said during a news conference in Iowa, the first state to hold party caucuses. "I take that as a compliment."

In a television interview on Australia's Nine Network, Howard criticized Obama's candidacy kickoff speech in Springfield, Ill., in which Obama said one of the United States' first priorities should be ending the war in Iraq. Obama has also introduced a bill in the Senate to prevent President Bush from increasing American troop levels in Iraq and remove U.S. combat forces from the country by March 31, 2008.

Noting that Obama is a "long way from being president of the United States," Howard said the Democratic senator's approach to Mideast problems is "wrong."

• Australian Prime Minister Blasts Obama's Iraq Policy

"I think that will just encourage those who want to completely destabilize and destroy Iraq and create chaos and a victory for the terrorists to hang on and hope for an Obama victory," Howard said. "If I were running Al Qaeda in Iraq, I would put a circle around March 2008 and pray as many times as possible for a victory not only for Obama but also for the Democrats."

Asked by the interviewer whether a Democratic presidency would spell "bad news for the alliance," Howard, who is seeking a fifth term in office later this year, responded: "Well I'll tell what would be even worse news for the fight against terrorism, if America is defeated in Iraq."

Howard is facing growing domestic unease to his commitment to keep 1,400 Australian troops in Iraq, mainly in noncombat roles. Recent polls suggest voters want him to set a deadline for withdrawing Australian troops.

"You either rat on the ally or you stay with the ally," Howard said of his continued support. "If it's all right for us to go, it's all right for the Americans and the British to go, and if everybody goes, Iraq will descend into total civil war and there'll be a lot of bloodshed."

Howard added that setting a deadline for withdrawal would only light a fire under terrorists waiting to seize and destroy Iraq.

"Al Qaeda will trumpet it as the greatest victory they've ever had ... And, if America is defeated in Iraq, the hope of ever getting a Palestinian settlement will be gone," he said.

If Howard had hoped to deter Obama, that's not the response he got from the freshman senator. Attacking the U.S. and Australian leaders at once, Obama said pre-war intelligence shows that President Bush was wrong to go into Iraq. He added that "the threat of terrorism has increased as a consequence of our actions in Iraq."

"Howard may have quibbles with our intelligence estimates. Maybe he has better ones?" Obama said.

"I would also note that we have close to 140,000 troops on the ground now. And my understanding is that Mr. Howard has deployed 1,400. So if he's ginned up to fight the good fight in Iraq, I would suggest, he calls up another 20,000 Australians and sends them up to Iraq," he continued.

While Obama and Howard duke it out rhetorically, Australian Labor Party leaders appeared stunned by Howard's comments about a U.S. politician and party.

"It's the first time that I can recall that an Australian prime minister has engaged in American politics in such a partisan way ... actually telling American people what side of politics they should vote for," said opposition foreign affairs spokesman Robert McClelland.

"It's most inappropriate, it demeans the Australia-United States alliance to suggest it's a relationship between political parties rather than an enduring relationship between two people," he said.

The Associated Press contributed to this report.