The House, however, narrowly rejected a move to specify that half the reconstruction money be in the form of loans, complicating negotiations between the two chambers on the $87 billion package to finance American military and aid efforts in Iraq and Afghanistan.
The Senate vote was an embarrassing setback for the White House and a rare defeat for the president in the Republican-controlled congress, reports CBS News Correspondent Peter Maer. Mr. Bush, Vice President Dick Cheney and Secretary of State Colin Powell personally lobbied against the Iraq loan approach, which passed the Senate with eight Republican defections.
Congress is expected to approve the president's full $87 billion Iraq spending plan later Friday, but House-Senate negotiators will have to resolve differences on the loan formula.
"I've never seen the secretary of state as engaged as he was on this issue," said Sen. John McCain, R-Ariz., who supported the administration stance.
"There was just some very sharp elbows thrown by administration officials" on the loan issue, said Rep. Mike Pence, R-Ind., who unsuccessfully tried to move a loan amendment in the House.
But the administration was confronted by lawmakers who said constituents were disturbed by the idea that the United States, while racking up record federal deficits, was giving billions in aid to a nation sitting on the second largest oil reserves in the world.
"It was very difficult to stop this train because it made so much sense," said Sen. Olympia Snowe, R-Maine, one of the eight Republicans who voted for the loan amendment, which passed 51-47 Thursday.
Senate Democratic leader Tom Daschle said the vote sent a strong message to the Bush administration that "it must do more to ensure that America's troops and taxpayers don't have to go on shouldering this costly burden virtually alone."
Also Friday, the House accepted an amendment by Reps. Jim Ramstad, R-Minn., and Dennis Moore, D-Kan., shifting $98 million from Iraq reconstruction to help troops on leave pay for their trips home.
For the first time since the Vietnam War, the military is giving service members with 12 months in the field in Iraq or Afghanistan a 15-day home leave. But after flying into the port of entry in this country, they must pay for the rest of their trip out of their own pockets and are "too often stranded at the airport, no where near their homes or families," Ramstad said.
By a mostly party-line 55-44 vote Friday, the Senate rejected an amendment by Daschle, D-S.D., barring future U.S. aid to Iraq — beyond the money in the current bill — unless Mr. Bush certifies that foreign countries' contributions equal those by the United States
In the House, Democrats David Obey of Wisconsin and Tom Lantos of California sought to convert half the $18.6 billion in the House bill for reconstruction, but lost, 226-200.
Senate Majority Leader Bill Frist, R-Tenn., promised to work hard to remove the loan provision when House and Senate negotiators meet, probably next week, to decide on the final version they will send to the president.
The goal is to get the bill on the president's desk before next week's conference of donor nations in Madrid, Spain.
But Frist acknowledged that "back home, people were asking for loans. ... It was very divided, very close, and that probably reflects feelings around the country."
There was little controversy over the bulk of the emergency spending package, $66 billion to sustain U.S. military operations in Iraq and Afghanistan. Debate centered on the money to restore economic and political stability in Iraq, which in the House bill included $793 million for health care programs, $2.8 billion for potable drinking water, $217 million for border security, $5.65 billion for electricity generation and $2.1 billion to rebuild Iraq's oil infrastructure.
Supporters argued that the quick creation of a stable, prosperous Iraq was in America's national interest. "Reconstruction money is defense spending. It is war spending and it is homeland security spending," House Majority Leader Tom DeLay, R-Texas, said.
Under the Senate loan amendment, the $10 billion in loans would be transformed into a grant if other countries agreed to forgive at least 90 percent of the debt they were owed by Iraq. That debt is usually estimated at between $90 billion and $127 billion.
The loan proposal was the most significant change lawmakers have made in the mammoth spending package that the president proposed on Sept. 7.