President George W. Bush headed toward a constitutional confrontation with Congress on Friday over his effort to reject a sweeping US defense bill.

Bush announced he would scuttle the bill with a "pocket veto" — essentially, letting the bill die without his signature 10 days after he received it, or the end of Dec. 31.

But that can happen only when Congress is not in session; otherwise, the bill becomes law without a formal veto in 10 days. And the Senate maintains it is in session by holding brief — sometimes only seconds long — meetings every two or three days with only one senator present.

The White House's view is that Congress has adjourned.

It was unclear how the executive and legislative branches would determine whether, in fact, Bush's lack of signature would amount to vetoing the bill or turning it into law.

"My withholding of approval from the bill precludes its becoming law," Bush said in a statement of disapproval sent to Congress.

The president said he was sending the bill and his outline of objections to the clerk of the House of Representatives "to avoid unnecessary litigation about the non-enactment of the bill that results from my withholding approval, and to leave no doubt that the bill is being vetoed."

Democratic congressional leaders complained that Bush's move was thrust upon them at the last minute. The controversy centers on one provision in the legislation dealing with Iraqi assets. The bill would permit plaintiffs' lawyers immediately to freeze Iraqi funds and would expose Iraq to "massive liability in lawsuits concerning the misdeeds of the Saddam Hussein regime," said White House spokesman Scott Stanzel.

"The new democratic government of Iraq, during this crucial period of reconstruction, cannot afford to have its funds entangled in such lawsuits in the United States," Stanzel said in a statement.

House and Senate Democrats said Friday the first time they'd heard of any White House concerns with the legislation was after Congress sent the bill to Bush for his signature.

"The administration should have raised its objections earlier, when this issue could have been addressed without a veto," Speaker Nancy Pelosi, D-Calif., and Senate Majority Leader Harry Reid, D-Nev., said in a joint statement. "The American people will have every right to be disappointed if the president vetoes this legislation, needlessly delaying implementation of the troops' pay raise, the Wounded Warriors Act and other critical measures."

Sovereign nations are normally immune from lawsuits in U.S. courts. An exception is made for state sponsors of terrorism and Iraq was designated such a nation in 1990. After the 2003 invasion of Iraq, however, Congress passed a law and Bush issued a decree stating that Iraq was exempt from such lawsuits.

After that exemption was passed, the administration challenged and successfully overturned a $959 million court ruling for members of the U.S. military who said they were tortured as prisoners of war during the first Persian Gulf War.

The Justice Department also sought to defeat a lawsuit brought by U.S. citizens held hostage during Iraq's 1990 invasion of Kuwait. That case has been taken over by lawyers for the new Iraqi government and is ongoing in a Washington federal court.

The provision that is causing problems would have allowed the victims of the executed Iraqi dictator Saddam to seek compensation in court, Democrats said. The Iraqi government has warned that former U.S. prisoners of war from the first Gulf War might cite this legislation in an attempt to get money from the Iraqi government's reported $25 billion in assets now held in U.S. banks, they say.

Unless Bush vetoes the legislation, the Iraqis have threatened to withdraw all of their money from the U.S. financial system to protect it from the lawsuits, Democrats said. The White House contends the legislation subject to the Bush veto would imperil Iraqi assets held in the United States, including reconstruction and central bank funds.

"Once in place, the restrictions on Iraq's funds that could result from the bill could take months to lift," Stanzel said. In turn, he said, those restrictions must not be allowed to become law "even for a short period of time."

Shot back Reid and Pelosi: "We understand that the president is bowing to the demands of the Iraqi government, which is threatening to withdraw billions of dollars invested in U.S. banks if this bill is signed."

The defense policy bill passed by veto-proof margins in the House and the Senate. Democratic aides said they have not ruled out any legislative options, including passing a technical correction or trying to override Bush's veto.

The sponsor of the contested provision, Sen. Frank Lautenberg, D-N.J., said the provision would allow "American victims of terror to hold perpetrators accountable — plain and simple."

Senate Republican Leader Mitch McConnell of Kentucky called on lawmakers to "move rapidly to fix this section" when Congress returns in January so that the underlying bill can be signed.

"It is my hope that the House and Senate will pass the modification when we return in January, in a bipartisan manner that preserves the important gains our nation has achieved in Iraq during 2007, without further delaying the many valuable programs in the bill," McConnnell said.

The White House says the bill authorizes 0.5 percent of the 3.5 percent pay raise that the nation's troops are expected to receive, and that part will be wiped away by the veto.

Stanzel said the administration will work with Congress to get the additional pay raise approved and retroactive to Jan. 1 under a reworked bill. He said the bulk of the raise for the troops — 3 percent — is slated to go into effect anyway.

Overall, the bill authorizes $696 billion in military spending, including $189 billion for the wars in Iraq and Afghanistan, for the 2008 budget year. It aims to provide more help to troops returning from war and set conditions on contractors and pricey weapons programs.

The measure reflects the best Democrats could do this year on their national security agenda while holding such a slim majority. Powerless to overcome GOP objections in the Senate, the bill does not order troops home from Iraq, as Democrats would have liked.

While it does not directly send money to the Pentagon, the bill is considered a crucial policy measure because it guides companion spending legislation and dictates the acquisition and management of weapons programs.