U.N. Secretary-General Kofi Annan says Iraq's forthcoming election marks the beginning of a new phase, in which responsible dialogue among Shi'ites, Sunni Arabs and Kurds will make the difference between success and failure in the war-torn country.

In a report to the Security Council Friday, Mr. Annan says increasing sectarian violence and ongoing human rights violations pose key challenges as voters prepare to go to the polls Thursday. He says the most positive development in the past three months has been the determination of Sunni Arabs to get involved in the political process.

In the quarterly report on Iraq to the Security Council, Mr. Annan warns, however, the country remains beset with formidable security, political and economic challenges.

Meanwhile, Sunni Arab clerics pleaded Friday for the lives of four Western hostages. Their kidnappers have said they will kill the men Saturday unless all Iraqi prisoners are freed.