Iraqi denunciations of an alleged United States and British missile air strike on a crowded Baghdad market, which killed more than 50 people and injured dozens more, have prompted new fears among allied commanders that Baghdad may be closer to using chemical weapons.

In Baghdad witnesses spoke of a missile landing on the al-Nasser market in the west of the city.

An Iraqi doctor said a missile hit a residential area just 300 metres from his hospital. He described the scene as a 'massacre' and said there were no potential military targets in that area.

Late on Friday night an explosion rocked a shopping mall in Kuwait City. Officials claimed it was a missile attack. The blast hit the Souq Sharq district on the Gulf coast near the centre of the city.

A policeman said he had also seen a missile crash into the sea. The blasts came after a day of allied bombardments of Baghdad, including the first use of 'bunker-buster' bombs.

Among the targets were command and control centres, including the Ba'ath party headquarters where eight people are thought to have been killed, and the city's main telephone exchange.

Following the air strikes the Iraqi authorities released television footage of an Iraqi cabinet meeting, which showed Saddam and a woman whom US officials have identified as Dr Huda Salih Mahdi Ammash -- a key player in the rebuilding of his biological weapons programme in the mid-1990s.

At Allied Central Command in Qatar, US Brigadier General Vince Brooks said there are indications that orders have been given for possible use of chemical weapons at a certain point.

American and British fears that their forces could face chemical or biological attack as they approached Baghdad have increased after soldiers discovered thousands of chemical protection suits stored in command posts abandoned by the Iraqis.

Some prisoners of war have also allegedly reported deployments of shells containing mustard gas, sarin and nerve agents to the Medina division of the Republican Guard, which is dug in outside Baghdad as the first line of defence against the invasion.

Most worrying of all for the allies has been the sighting of Iraqi troops in protective suits unloading huge 50-gallon drums in front of their lines.

US experts are still trying to establish what the drums might contain. High on the list of possibilities, they say, is mustard gas, which causes blistering, blindness, breathing problems and possible death.

The review of Iraq's chemical warfar capabilities comes amid fiery rhetoric from Iraqi officials that Baghdad would become a 'a graveyard' for US and British forces.

In the south of the capital, Saddam supporters opened fire on civilians trying to flee the besieged city of Basra.

Eyewitnesses reported shocking scenes of Basra families fired upon by Iraqi militia as they tried to flee towards British lines.

Elsewhere south of Baghdad, bitter fighting continued as US Marines clashed repeatedly with Iraqi forces as they pushed towards the capital.

Four US Marines are missing following a fierce combat in Nasiriya, as running battles continued throughout the day, especially in the southern approaches to the city, which allied troops have dubbed 'Ambush Alley'.

As the fighting raged on, the US finally admitted it had been taken aback by the strength of the Iraqi resistance.

In Washington, US Deputy Defence Secretary Paul Wolfowitz said military planners had not expected the guerilla attacks on coalition troops. "We probably did underestimate the willingness of this regime to commit war crimes. I don't think we anticipated so many people who would pretend to surrender and then shoot," he said, adding, "I don't think we anticipated the number of execution squads inside Basra."

Inside Iraq the US Army's senior ground commander in Iraq, Lieutenant

General William Wallace has admitted that unexpected tactics by Iraqi fighters were slowing down the campaign.

"The enemy we're fighting is different from the one we'd war-gamed against," he said during a visit to the 101st Airborne Division headquarters in central Iraq.