IRAQ TO BE PUNISHED, CLINTON PLEDGES : U.N. SUSPENDS OIL TRADING AGREEMENT.

Byline: Steven Lee Myers The New York Times

The Clinton administration vowed Sunday to punish Saddam Hussein for Iraq's military thrust into the Kurdish enclave in northern Iraq, and U.N. Secretary General Boutros Boutros-Ghali suspended the recent agreement to allow Iraq to sell oil to raise cash for food and medicine.

The suspension was the first international response to Iraq's incursion north against the Kurds, whose enclave has been protected by the United States and its Western allies since 1991.

In a statement, Boutros-Ghali said he had decided to suspend the sale because of ``the deterioration of the situation in northern Iraq.''

Although the United States and others encouraged the suspension to punish Iraq, Boutros-Ghali's spokeswoman, Sylvana Foa, said the decision arose primarily from concern about the security of the workers needed to monitor the sales.

The action and the administration's vow of retribution against Saddam came as Iraq consolidated its control over Erbil, the main Kurdish city in the north, which Iraqi troops overran Saturday.

Despite an initial pledge to withdraw, Iraq appeared to expand its attack Sunday and shelled at least one other city, having allied itself with forces from the Kurdistan Democratic Party against its rival faction, the Patriotic Union of Kurdistan.

In Baghdad on Sunday, Iraq's defense minister, Lt. Gen. Sultan Hashim Ahmed, emerged from a Cabinet meeting and announced that Saddam had ordered Iraqi forces to withdraw from Erbil, Reuters news service reported.

Boutros-Ghali also said that Iraqi Deputy Prime Minister Tariq Aziz conveyed the same message to him. But there were no immediate signs that was happening, and officials here viewed the latest pledge skeptically.

As President Clinton spoke with leaders of America's allies, including Britain, and with King Fahd of Saudi Arabia, senior administration officials said they had ruled out nothing, including a military strike.

White House Chief of Staff Leon Panetta said that the United States would ``respond accordingly'' to Iraq's incursion. ``I don't want to say when or where or what, but we will respond,'' Panetta said Sunday on the NBC news program ``Meet the Press.'' ``And we will respond with consequences to Saddam Hussein.''

Iraqi forces, estimated to include 30,000 to 40,000 troops backed by tanks and heavy artillery, seized Erbil in a flash Saturday. Saying they were intervening on behalf of the Kurdistan Democratic Party, the Iraqi troops routed fighters of the Patriotic Union of Kurdistan, which has occasionally allied itself with Iran.

Panetta acknowledged that Iraq's campaign in the northern exclusion zone - created by the United States, Britain and France to protect the Kurds from Iraqi repression - posed a more complex question than the invasion of Kuwait in 1990 or Iraq's buildup of forces in the south in 1994.

``I mean, there's some distinction here between invading into Kuwait and engaging in an internal dispute here with the Kurds,'' Panetta said Sunday when asked whether Saddam could act with impunity.

Striking at Iraq's forces now could drag the United States into the internecine conflict between the Kurds - or at least create the appearance that it had sided with one side over the other.

For two years, the administration has tried to patch up the divisions and keep the Kurds united, fearing intervention by both Iraq and Iran.

Other senior officials insisted that the administration's focus would remain on punishing Saddam regardless of whatever loose alliances he may have with the Kurds.