As the high-stakes crisis dragged into its third day, NATO chief George Robertson tabled the new proposal in a bid to overcome opposition from Belgium, France and Germany to approving military backing for Turkey.
"The allies are all working very hard to find a solution to what is a serious issue," said spokesman Yves Brodeur after the latest meeting of NATO's policy-making North Atlantic Council (NAC) broke up without result.
A new NAC meeting could be held later in the day, after further direct consultations between NATO governments, an official said, although this remained uncertain.
Hopes of a breakthrough remained dim amid little sign of a change in position from the three holdouts, which have been accused by Washington of threatening the break-up of the alliance altogether.
The rift, which reflects the widening transatlantic gap over a threatened US-led war on Iraq, has escalated into one of the worst crises in the military alliance's 54-year history.
Despite the huge pressure for an accord, NATO fears that there can be no accord before a crucial meeting of the UN Security Council on Friday which will hear a second report from chief weapons inspector Hans Blix on Iraq's disarmament.
"A solution which didn't take into account the fact that Hans Blix is presenting his report Friday would not be able to overcome our objections," a Belgian diplomat told AFP.
Brodeur rebuffed suggestions that there could be no agreement before Friday's meeting in New York. "It's not a question of timing at this point," he said.
The United States presented a package of proposals for a NATO role in a threatened war on Iraq in mid-January.
The proposed package includes deploying Patriot anti-missile batteries, AWACS surveillance planes and chemical-biological protection units to Turkey, NATO's only Muslim member and the only one to share a border with Iraq.
It also includes proposals to allow the redeployment of NATO troops, notably from Europe and the Balkans, in the event of a war in Iraq, an issue which has raised concern among the three holdouts.
One diplomat said the compromise proposal, discussed by NATO governments overnight, stripped off elements of the package relating to troop redeployment.
"There is some hope that the issue has been that Germany, France and Belgium have needed to find some kind of political way to accept defence of Turkey.
The crisis was sparked on Monday after France, Belgium and Germany vetoed the US plans. Turkey immediately invoked Article 4 of NATO's 1949 founding treaty charter, signalling that it feels its territory is threatened.
The three European holdouts argue that agreeing to launch NATO military planning over Iraq would send the "wrong signal" at a time when diplomacy is continuing at the United Nations.
The NATO spokesman refused to be drawn on how the three countries had reacted to the new compromise.
"All allies are again involved in intense consultations. I don't think it would be useful to try to characterize the position of any country at this point," Brodeur told reporters.
The latest attempts to find a solution came after US Secretary of State Colin Powell upped the ante by accusing the three countries blocking a deal of using NATO as a political tool to advance their anti-war agenda.
Powell even warned that NATO risked imploding over the crisis.
"Who is breaking up the alliance?" he asked. "Not the United States. The alliance is breaking itself up because it will not meet its responsibilities."
Iraq has hailed the European trio's decision to block the US proposals as "a slap in the face for the US administration." In a sign of the intensity of diplomatic efforts, Robertson cancelled a trip to Spain scheduled for Thursday, an official said.
After their Wednesday morning talks, NATO ministers held a routine lunchtime meeting on other matters. A further NAC meeting on Iraq could be held around 6:00 pm (1700 GMT), an official said - Sapa-AFP.
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