White House officials issued the warning even though many lawmakers agree that the bill's final version is likely to bow to President Bush and omit any loans. By underscoring Mr. Bush's opposition to loans, the administration threat could make it easier for congressional Republican leaders to nail down enough votes to help the president prevail.
The House bill included $18.6 to help Iraq rebuild its water supplies, health clinics and Army, and made the money a grant that country would not have to repay.
The Senate included $18.4 billion but would require Iraq to repay about half — unless Saudi Arabia, Russia and other countries forgave 90 percent of the debt Baghdad ran up under Saddam Hussein's regime.
Mr. Bush and a host of administration officials had repeatedly expressed their opposition to loans in recent weeks, but had not issued a veto threat before. A letter written Tuesday reiterated White House arguments, but contained the first such veto warning.
"If this provision is not removed, the president's senior advisers would recommend that he veto the bill," wrote White House budget director Joshua Bolten.
"Including a loan mechanism slows efforts to stabilize the region and to relieve pressure on our troops, raises questions about our commitment to building a democratic and self-governing Iraq, and impairs our ability to encourage other nations to provide badly needed assistance without saddling Iraq with additional debt," the letter said.
Later this week, U.S. officials are hoping to get billions in pledges from foreign countries at an Iraq donors' conference in Madrid. So far, according to The New York Times, Japan has pledged $1.5 billion for next year and more in the future, Britain said it would donate $800 million, Spain nearly $300 million and Canada $260 million. The Pentagon estimates Iraqi reconstruction will require $55 billion.
Were Congress to pass the Senate version of the reconstruction bill, countries could follow the U.S. example and provide loans rather than grants.
In addition, U.S. officials are hoping to steer the donors' conference away from debt relief and toward grants. If the U.S. reconstruction plan links America aid to debt relief, it might be difficult to get donors to focus on new aid.
Loan supporters say that with some of the world's richest oil reserves, Iraq should be required to eventually repay some U.S. aid. That is especially true with the United States facing record federal deficits, and many members of Congress hearing requests from their home districts for more funds for local roads and other projects.
House-Senate bargainers hope to reach compromise on a final version of the bill next week.
Both houses overwhelmingly approved similar bills Friday providing most of the $87 billion that Mr. Bush requested for U.S. military operations in Iraq and Afghanistan and for rebuilding the two countries. The House vote was 303-125, while the Senate roll call was 87-12.
The loans-vs.-grants debate concerns only a portion of the massive bill, which provide nearly $66 billion for U.S. troops in the field.
Both chambers chopped nearly $2 billion off the $20.3 billion he requested for retooling Iraq's oil industry, its court system and the rest of its economy and government.
Minutes before final passage, the Senate voted by voice to strip nearly $1.9 billion from that part of the bill, erasing money for ZIP codes, sanitation trucks and other items that some lawmakers had derided as frivolous. The House had already killed most of those same items.
Senators also voted to add $1.3 billion for veterans' health care programs.
The bills also contained rebuilding aid for Afghanistan; assistance for Pakistan, Jordan, and other U.S. allies; and cash for rewards for the capture of Saddam and Osama bin Laden.