Baghdad, Iraq ? U.S. authorities announced the creation of a defense force they christened the New Iraqi Army and promised monthly stipends to former career soldiers Monday in an attempt to resolve a volatile confrontation plaguing occupation forces.

The two moves, especially the payments, appear to be aimed at defusing the rage of hundreds of thousands of former soldiers who were left without jobs and pensions when the U.S.-led administration disbanded Saddam Hussein’s armed forces last month.

Dismissed officers have taken to the streets to demand compensation, and officials feared they could become part of an armed resistance. Two were killed last week when U.S. troops fired on protesters during a demonstration outside the former presidential palace now used as a headquarters by U.S. and allied forces.

U.S. forces in Iraq have faced ambushes and small-scale attacks almost daily in recent weeks. Observers say the failure to restore essential services, transfer any power to new Iraqi authorities and find Saddam have all contributed to instability.

Under the new U.S. plan, as many as 250,000 former soldiers who served under Saddam would be eligible for monthly payments of as much as about $150, slightly less than their former salaries. Former senior members of Saddam’s Baath Party, former agents of the old regime’s internal security forces and anyone accused of war crimes or human-rights abuses would get nothing.

In making the announcement, U.S. officials made a point of praising the majority of the former soldiers and officers.

“The Iraq army had a long tradition of service to the nation,” Paul Bremer, the top U.S. official here, said in a statement. “Many, perhaps most, of its officers and soldiers regarded themselves as professionals serving the nation and not the Baathist regime.”

The new force will be much smaller than Saddam’s 400,000-member military, which once was one of the biggest and most powerful in the Arab world. In two years, the new force is expected to have about 40,000 soldiers, said Walter Slocombe, the occupation force’s senior adviser for security and defense issues.

Its role also will be greatly diminished. U.S. authorities said it would be given nonpolitical duties such as guarding borders, providing security at key installations and clearing mines.

U.S. Army officers attend a ceremony where Iraqi police officers received new uniforms and used revolvers as part of an American plan to upgrade the local police force in Fallujah, Iraq. The police were given a partial order of U.S. Air Force uniforms, as the local tailor had not finished the order in time for Monday's ceremony.

“This country was grotesquely overmilitarized,” Slocombe said.

Maj. Gen. Paul Eaton, former commander of the U.S. Army Infantry Center at Fort Benning, Ga., will oversee training of the new force.

To be eligible for the stipends, which will depend on length of service and other factors, former soldiers will be required to renounce Saddam’s Baath Party and violence. The money is to come from Iraqi revenues, officials said. It will be up to a future Iraqi government, once it is formed, to determine whether to continue the stipends, and if so, on what terms.

Another 300,000 former conscripts will receive a one-time payment. The size of that payment has not yet been determined.