"I will not accept a homeland security bill that ties the hands of this administration or future administrations in defending our nation against terrorist attacks," the president said in his weekly radio address as the United States prepares to mark the Sept. 11 anniversary.
Mr. Bush wants to implement the biggest government reshuffling in a half century by folding all or parts of two dozen existing agencies into a new, Cabinet-level Department of Homeland Security. It would include the Secret Service, Coast Guard and Border Patrol.
In proposing to set up the 170,000-strong agency, he has demanded broad power to hire, fire, transfer and reward workers in what he says would be an effort to operate the department efficiently to better protect against terrorism.
The Republican-led House has passed a bill that Mr. Bush supports. But the Democratic-controlled Senate escalated the battle over labor rights this week and a top Democrat hosted a protest rally with federal workers.
Appearing with union leaders, Sen. Joseph Lieberman of Connecticut, the chief author of the Senate bill and chairman of the Senate Governmental Affairs Committee, claimed Mr. Bush had tried to "turn this into an effort to strip federal workers of their just civil service and collective bargaining protections."
But Saturday, in the Democratic radio response, Lieberman called the dispute a side issue "that ought to be put off for another day."
They should not "deter us from completing our urgent mission to protect the American people from terrorism at home," Lieberman said.
"Our proposal and the president's share the same mission, the same basic structure, and the same sharp focus on results," Lieberman said as he described plans to consolidate 28 agencies into the new department.
"But there are some differences," he said. "For example, our plan gives the new department the ability to bring together in one place, for the first time, all the information on possible terrorist threats so we can prevent them," he said. "The president's proposal instead protects the old bureaucratic barriers and reinforces the tendency to share too little information, too late."
Mr. Bush said the Senate version would weaken the president's "well-established authority" to prohibit collective bargaining when a national security interest demands it.
"A time of war is not the time to limit a president's ability to act in the interests of national security," he added.
The new agency "must be able to move people and resources quickly, without being forced to comply with a thick book of bureaucratic rules," the president said. "One essential tool this new department needs is the flexibility to respond to terrorist threats that can arise or change overnight."
Democratic and Republican leaders voiced optimism that a compromise could be reached. But none has yet been offered and instead the two sides have seemed to dig in their heels.
"Senators need to understand I will not accept a homeland security bill that puts special interests in Washington ahead of the security of the American people," Mr. Bush said. "I urge the Senate to follow the House's lead and pass legislation that gives the department the flexibility and the authority it needs to protect the American people."
Votes are expected next week on proposed amendments aimed at giving Mr. Bush the "management flexibility" he has demanded. Other amendments would address his concerns in such areas as funding and intelligence gathering.
"I expect all the votes will be close," said Sen. Fred Thompson, a Tennessee Republican. Top Democratic aides agreed.
Differences between the House and Senate measures would have to be ironed out before a final bill could be sent to Mr. Bush to sign into law.