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Manila Gives In
When Filipino truck driver Angelo de la Cruz was kidnapped by insurgents outside Fallujah on July 8 and threatened with decapitation unless the Philippines' 51 peacekeepers were pulled from Iraq, Manila was presented with an all-too-familiar dilemma. (Similar demands have been made of Japan, South Korea and Italy.) Philippine President Gloria Macapagal Arroyo last week chose to recall her country's troops a month before they were scheduled to leave, and may have saved De la Cruz, 46, a father of eight. But she damaged relations with Washington and may well have encouraged more kidnapping of foreign nationals. "This kind of action cannot be allowed to succeed anywhere in the 21st century, above all not Iraq," chided U.S. Secretary of State Colin Powell.

Why did Arroyo negotiate with the terrorists? Arroyo's own presidency may have been at stake — just weeks after she won re-election. After De la Cruz was kidnapped, protests and prayer vigils calling for troop withdrawal were held across the Philippines. Some 4,000 Catholic priests and bishops released a petition urging Arroyo to do everything in her power to gain his freedom. Rallies in Manila were getting rowdier by the day. Senator Rodolfo Biazon notes: "Had [Arroyo] not listened to the pulse of the people, she could have been toppled."

Still, by showing that kidnapping pays, Arroyo might find

Reform or Rhetoric? EGYPT President Hosni Mubarak's appointment of a new government led to renewed speculation about his succession. While Mubarak has denied that he's grooming his younger son, Gamal, a senior member of the ruling National Democratic Party, to replace him, new Prime Minister Ahmed Nazif, pictured, and eight other new ministers are part of Gamal's team of young modernizers. Opinion was divided on whether the new Cabinet heralded real change. "This is a new generation, with new ideas and a new way of thinking," a senior official told TIME. But Hisham Kassem, publisher of the proreform Cairo daily Al-Masry al-Youm, said: "It strikes me as a release of steam more than a progressive move." AMR NABIL/AP

she has created even bigger problems — for herself and for her country's allies. — By Anthony Spaeth. With reporting by Nelly Sindayen

Affairs of State
LITHUANIA Former President Rolandas Paksas appeared in a Vilnius court on charges of leaking state secrets. Paksas was impeached in April after just 15 months in office; if found guilty, he faces a possible three-year jail sentence. The trial was adjourned until September.

Living Dangerously
CHECHNYA In an escalation of ongoing violence, at least 20 pro-Moscow Chechen security forces and Russian soldiers died across the province in fighting that reportedly left several dozen militants dead. Acting President Sergei Abramov survived a mine attack on his motorcade in Grozny, but 12 members of the presidential security service were later abducted by the rebels.

School Inferno
INDIA Police arrested five people in the southern state of Tamil Nadu, including the owner of a private school, on suspicion of negligence after at least 88 children died and dozens more suffered serious burns in a fire that gutted the school building.

A Striking Difference
PERU Labor unions claimed wide support for a 24-hour national strike to protest President Alejandro Toledo's free-market economic policies, while the government said that most employees had reported for work. Opinion polls show Toledo 's approval rating at less than 10%.

MEANWHILE IN GERMANY ...
Get Your Kit Off
Two female Green Party politicians wrote to the German Football Association demanding that players not be penalized for taking off their shirts on the pitch. The pair were shocked to see Portugal 's Cristiano Ronaldo get yellow carded for baring his chest to celebrate scoring a goal against the Netherlands during Euro 2004, and launched a campaign on behalf of female fans keen to appreciate players' "athletic torsos." Purely from an aesthetic point of view, of course.