With tens of thousands of its troops reportedly massed on Kuwait's border with Saudi Arabia, Iraq announced Saturday that it had installed a military government in Kuwait and was creating a new army for the tiny oil-rich nation that it invaded. Iraq's state-run television in Baghdad said Kuwait's new nine-member government would be headed by Col. Alaa Hussein Ali, who will serve as prime minister and commander-in-chief of the armed forces. Sources in the Persian Gulf identified the new leader as the son-in-law of Iraqi dictator Saddam Hussein.

"The situation in Kuwait is back to normal," said Mohamed Mashat, Iraq's ambassador to the United States. "The Kuwait authorities are consolidating their control over all aspects of life."

The Bush administration branded the "provisional free government" as a "puppet government" and said the Al-Sabah family, rulers of Kuwait for 230 years, should be returned to power.

Kuwaiti officials and diplomats abroad said that all nine officers of the new government were Iraqis, not Kuwaitis.

On another topic, Mashat, speaking to reporters at the Iraqi Embassy in Washington, "emphatically and categorically" denied that his country "harbors designs against the kingdom of Saudi Arabia."

But there were growing fears that Iraqi forces were moving to control Saudi oil or possibly invade _ a move that would be likely to spark U.S. military intervention.

A congressional source with access to U.S. intelligence information, confirming reports from the Gulf, said American satellites and Saudi intelligence gathering had detected "thousands, perhaps tens of thousands" of Iraqi forces massing in the oil-rich Partition Neutral Zone in the southeast region of Kuwait. Official Iraqi radio denied its troops were there.

Within the zone, said a senior Kuwaiti source, the Iraqi troops "stormed into the homes of dozens of Kuwaitis and evacuated them and their families."

Under a 1966 agreement, Kuwait and Saudi Arabia have jointly administered the sparsely populated patch of desert. They have shared equally in proceeds from its oil production.

Saturday, President Bush's spokesman repeated that "all U.S. options are under consideration," while key lawmakers said they would support any military options Bush decides to exercise in the event of an Iraqi invasion of Saudi Arabia.

The Iraqi-installed group calling itself Kuwait's new government said in a radio announcement Saturday that it was forming a "popular army" to protect the country and said the emir of Kuwait, Sheikh Jaber Al-Ahmed Al-Sabah, would not be allowed to regain power.

Hussein's Revolution Command Council said its troops had a timetable for withdrawal starting today "unless factors appear that would threaten the security of Kuwait or Iraq."

With its stranglehold on its tiny neighbor, remnants of whose 20,300 forces fought the invaders for some 30 hours, the council was clearly referring to outside intervention.

If a foreign power intervened in the Gulf, Iraq would "chop its arms off from the shoulders," the council said.

The United States, orchestrating a worldwide drive to cripple Baghdad's economy and force an unconditional pullout from Kuwait, said it was skeptical of Iraq's pledge to leave.

Pentagon and White House officials said the Iraqi force was consolidating its positions.

"If the Iraqis want to, they can get a line of tanks and trucks headed north (today) for the television cameras," one official said. "But there are no indications that they have started the preparations for a major withdrawal."

A Pentagon official said any quick Iraqi attack on Saudi Arabia would have to be without the logistical support usual for a major operation.

"They have not brought a lot down to Kuwait for a large-scale drive into Saudi Arabia," said an official.

"A long-term drive would require more of a logistical tail _ more water, gas, fuel, ammunition, spare parts and all of that," the official said.

But he cautioned that Iraq sometimes surprised its Iranian adversaries during the eight-year Gulf war by attacking without the supply support many usually considered essential.

In other developments:

Persian Gulf shipping sources said Iraqi troops seized the crews of all ships docked at Kuwaiti ports and impounded the vessels. The crews from many nations included at least 20 Americans and some Iranians, the sources said. However, spokesmen at the U.S. State Department said they had no information to confirm the report of U.S. crewmen being seized.

"All seamen irrespective of nationality were taken off the ships and are under Iraqi control, call it arrested, call it seized," said one shipping executive, speaking on condition of anonymity.

Sources in the region also said two Iranian ships, Iran Hormuz and Safeer, were seized.

Iraqi Ambassador Mashat said that 11 of 14 American oil workers missing since the invasion were in Baghdad and free to leave. He declined to say how they had gotten from Kuwait to the Iraqi capital, but the State Department had said they were seized by Iraqi forces. Of the remaining three missing Americans, Mashat said: "We're looking for them."

American, British and French warships headed toward the Persian Gulf. French Foreign Minister Roland Dumas said France would consider supporting a naval blockade of Iraq.

The British Defense Ministry announced that Iraqi forces had seized 35 British soldiers in Kuwait who had been there as advisers to the Kuwaiti military.

The situation in Kuwait was reported calm, with no reports of the sporadic gunfire that had been heard Friday.

_Information from Cox News Service, the Associated Press, Reuters and New York Times was used in this report.