By Richard Cowan

WASHINGTON, Jan 16 (Reuters) - The U.S. House of Representatives, bowing to pressure from President George W. Bush and the Iraqi government, passed a defense bill on Wednesday that would exempt Iraq from lawsuits dating back to the regime of executed former President Saddam Hussein.

The House, by a vote of 369-46, approved the measure allowing the exemption and authorizing a range of U.S. military programs. The Senate is likely to pass the bill after it returns from recess next week.

Congress approved this bill in a slightly different form late last year but a second round of votes was required after Bush objected to the inclusion of Iraq in a provision enhancing the ability of U.S. citizens to sue state sponsors of terrorism for damages in U.S. courts.

The new bill waives that provision for Iraq.

Private lawsuits against Libya can still go forward, but only for acts that occurred while it was designated as a state sponsor of terrorism from 1979 to 2006.

House Armed Services Committee Chairman Ike Skelton, a Missouri Democrat, noted that even with the waiver, the amended bill encourages Baghdad "to satisfy the legitimate claims American citizens have against that country and its former leader Saddam Hussein."

The Bush administration, after receiving complaints from Baghdad, said the original bill would have reopened lawsuits filed against Iraq under Saddam, who was ousted in 2003 and hanged in 2006. Some of those suits date back to the 1991 Gulf War, in which U.S. troops expelled Iraqi invaders from Kuwait.

The new Iraqi government complained that such lawsuits could tie up around $25 billion at a time when it is trying to rebuild the country.

The defense bill provides the Pentagon a broad outline for military priorities this year and directs weapons and acquisition programs.

It also authorizes a pay raise for U.S. troops retroactive to the beginning of this year, expands the size of the Army and sets conditions on the Bush administration's plan to build a missile defense system in eastern Europe. (Editing by Alan Elsner)

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