By a 59-38 vote, the GOP-run Senate defeated a proposal by Sen. Robert Byrd, D-W.Va., to shrink the $20.3 billion Bush wants for rebuilding Iraq to $5.1 billion. The vote, in which nine Democrats sided with the president, was the first test of a package that Senate leaders hope to complete by mid-October.
Off the floor, administration officials and top House and Senate Republicans labored to tamp down efforts by their own rank and file, moderates and conservatives alike, to make at least part of the reconstruction money a loan.
"Given all the needs here in the United States, we have to sometimes draw lines, and that's one of them," said Sen. Olympia Snowe, R-Maine, a loan supporter.
House Budget Committee Chairman Jim Nussle, R-Iowa, said he would prefer some aid be delivered as a loan, adding that the details of the reconstruction plan need to be scrutinized.
"I would hope that when the final bill is presented, that it is scrubbed clean of many of those concerns for wasteful spending," he said.
The effort has evolved into a test of Bush's ability to lead the slim GOP majorities in the House and Senate. Democrats see it as a pre-election opportunity to tarnish Bush for ineffective policies at home and abroad.
The administration has said that if Iraq must repay the money, it would slow that country's recovery and feed a perception overseas that the United States was mainly interested in Iraq's vast oil reserves.
As a fallback, top Republicans were searching for a formula that would win votes from both grant and loan supporters.
"Work hard to make it grants," Senate Majority Leader Bill Frist, R-Tenn., said of his goal. "I feel strongly that for the benefit of Iraq, it must be grants."
But Democrats continued criticizing Bush for diverting taxpayers' dollars overseas when the U.S. economy is weak, budget deficits are setting records and many domestic programs could use extra money.
"Instead of redoubling our efforts to spread the burden of rebuilding Iraq among the international community, the president appears content to simply present the bill to the American taxpayers, and to their children," said Byrd.
Though the White House showed no signs of backing down, House Appropriations Committee Chairman Bill Young, R-Fla., said he has "gotten some signals" that the White House might consider a way to make the money "a repayable investment."
Young's panel will write its version of the bill next week.
"I want to be as supportive of the president as I can and still produce a bill that's realistic and acceptable to the House," he said.
Members of both parties are strongly behind the administration's $65.6 billion request for U.S. military operations in Iraq and Afghanistan during the government's new budget year, which began Wednesday.
The administration also is asking for $600 million to continue the hunt for conclusive evidence that Saddam Hussein had weapons of mass destruction, a primary justification for the war, The New York Times said in a report for Thursday editions. The money is mentioned in a classified part of the $87 billion request to Congress, the Times said, citing unidentified officials.
As the Senate began debating the legislation, Sen. Kay Bailey Hutchison, R-Texas, a member of the Senate GOP leadership, offered an amendment that would put half the $20.3 billion into a fund aimed at attracting matching foreign donations. Money left over could be used as loans and loan guarantees.
Its four co-sponsors included moderate Sen. Susan Collins, R-Maine, and conservative Sen. Lindsey Graham, R-S.C., underlining how worries about spending taxpayers' money in Iraq were cutting across the GOP spectrum.
Sen. Robert Bennett, R-Utah, said in an interview that he was searching for a plan by which "those in favor of loans might end up being in favor of a grant."
Bennett would not describe his idea. But other Republicans, speaking on condition of anonymity, said he would create a fund that would hold U.S. aid, Iraqi oil revenue and contributions from other countries. The money would be used to rebuild the country, and leftover funds could ultimately be repaid to the United States.
With Republicans controlling the Senate by just 51-48 — not counting a Democratic-leaning independent — every vote can be crucial. But Sen. Joseph Biden, D-Del., top Democrat on the Senate Foreign Relations Committee, said he supported grants, and several others were expected to follow suit.