BAGHDAD (Reuters) - Two Iraqis were killed on Saturday in violent confrontations between hundreds of former soldiers in Saddam Hussein's disbanded army and occupying troops in Baghdad and the southern city of Basra.

The British army said one of its soldiers shot dead an armed Iraqi during an angry demonstration in Basra by men who had gathered to collect redundancy payments after being laid off from the Iraqi military.

Major Simon Routledge said a British soldier heard gunfire and then shot and killed an Iraqi holding a weapon. British troops also fired rubber bullets to disperse the crowd.

Hundreds of former Iraqi soldiers also rioted at a disused airport in Baghdad where redundancy payments are handed out. They hurled rocks and rushed toward U.S. soldiers who beat them back with batons and fired shots in the air.

Officials at a hospital said one Iraqi had been killed and several wounded. The U.S. Army said two of its soldiers and four Iraqis were wounded.

Jobless men also staged a violent protest in the holy city of Najaf. Charles Heatly, spokesman for Iraq's U.S. administrator Paul Bremer, said there had been disturbances at a payment center for former soldiers in the town of Hilla too.

Heatly said there was no indication that the violence was coordinated. He said the unrest was fueled by "old guard" Iraqi officers who spread a rumor that there was not enough money to pay all the ex-conscripts.

"They decided to stir up the crowd that was waiting outside the payment centers in Baghdad and Basra, in particular, to create a disturbance," he told a news conference.

NEW ARMY

The U.S.-led administration in Iraq disbanded the country's army in May. It later agreed to pay $40 compensation to each of the 440,000 conscripts who had served in the army.

Washington is setting up a smaller military force to take the place of Saddam's army. On Saturday, the first recruits in the New Iraqi Army graduated from basic training in a ceremony near the Iranian border attended by Bremer. Heatly said news of the ceremony may also have sparked the unrest.

Late on Friday, guerrillas attacked a U.S. convoy near Baghdad with gunfire and rocket-propelled grenades, killing a 4th Infantry Division soldier and wounding another, the U.S. Army said. It said American troops pursued the attackers, killing two and wounding one.

Fourth Infantry Division spokeswoman Major Josslyn Aberle said guerrillas fired mortars at a U.S. outpost about 30 miles north of Baghdad. A 12-year-old girl was killed and two other civilians wounded in homes near the base.

At least 85 U.S. soldiers have been killed in action in Iraq since Washington declared major combat over on May 1.

DIPLOMATIC TENSIONS

Washington, facing a guerrilla insurgency and mounting financial costs, is trying to agree a new United Nations resolution giving the world body a broader mandate in Iraq in an effort to coax reluctant countries to provide troops and funds.

But Security Council members France and Russia say they are unhappy with the draft U.S. resolution. The two countries, which opposed the war in Iraq, want a faster handover of power to Iraqis as a condition for their support.

"I won't hide from you that it was a bit of a disappointment for us...there is fairly little progress," French President Jacques Chirac said of the draft resolution at a news conference at a European Union summit in Rome.

U.N. Secretary-General Kofi Annan has said the world body could not play a proper political role in Iraq under the terms wanted by the United States.

Meanwhile, a diplomatic spat between Poland and France which began when Polish troops in Iraq found French-made missiles near the town of Hilla seemed to have been defused on Saturday.

Warsaw apologized to Paris for claiming that the advanced anti-aircraft missiles had been produced in 2003, saying Defense Minister Jerzy Szmajdzinski regretted the information on the alleged date.