"If he was in opposition against the Americans, that will be justified because it was an occupation force," Georges Sada, Allawi's spokesman, said on Saturday of rebels who may be offered amnesty. "We will give them freedom."
But the amnesty suggestion has been met with scepticism by some Iraqis.
One former army officer who described himself as a "helper to the resistance" in Falluja said Allawi's plan would find little traction because his government is seen as illegitimate.
"I do not want to return to the new Iraqi army and be put in a situation where I have to open fire on my countrymen in order to defend the Americans," said Muhammad al-Janabi, once a colonel in the disbanded Iraqi army.
'Dividing the resistance'
"The goal of this offer is to divide the resistance. They want to isolate the honest patriots from the Islamic Mujahidin - in other words divide and rule - and this is not going to happen," al-Janabi said.
"As for Allawi and (President Ghazi) al-Yawar, they are taking orders from the new American ambassador after the departure of their former master, Bremer. They are helping the Americans steal our oil and they will be punished."
"I do not want to return to the new Iraqi army and be put in a situation where I have to open fire on my countrymen in order to defend the Americans"
former colonel in the disbanded Iraqi army
Such people, Sada warned, would face the full force of the US-backed Iraqi security forces.
"He should expect to be killed. Those who continue fighting the government can expect anything ranging from prison to the death penalty," he said.
Last week, Allawi publicly warned Baathists to stop backing the insurgency.
One former colonel in Saddam Hussein's secret police said he and other former Baathists would welcome any amnesty. The man, now a Mosul taxi driver who asked that he simply be called Abu Hani, said Islamist fighters would be unlikely to accept Allawi's offer.
"In my opinion, Allawi and al-Yawar are working to salvage the country from the ordeal. They are going in the right direction," Abu Hani said. "It seems that the new rulers of Iraq want to fix some of the mistakes committed earlier, such as the disbanding of the Iraqi army and the security bodies."
Choking the 14-month resistance is a top priority of Allawi's government, and the prime minister is expected to make a number of security-related policy announcements in coming days.
Iraqi resistance fighters defend
Falluja, despite a shaky truce
Besides the amnesty plan, those include the resurrection of Iraq's death penalty and an emergency law that sets curfews in Iraq's trouble spots, Sada said.
The amnesty plan is still in the works. A full pardon for resistance fighters who killed Americans is not a certainty, Sada said.
Allawi's main goal is to "start everything from new" by giving a second chance to fighters who hand in their weapons and throw their weight behind the new government.
"There is still heavy discussion about this," said Sada, interviewed in the prime minister's office. He said the US embassy has encouraged Allawi to try creative solutions to end the resistance.
Some type of amnesty is needed to coax Iraqi nationalist fighters to the government's side, while separating them from fighters planting bombs, experts say.
"It's hard to imagine any way forward other than co-opting people who had previously fought against the United States, either as part of Saddam's army, part of the insurgency, or both," said Jon Alterman, a Middle East expert at the Centre for Strategic and International Studies in Washington.
"Allawi needs to split the opposition into two groups: those he can co-opt and those he must confront."
"It seems that the new rulers of Iraq want to fix some of the mistakes committed earlier, such as the disbanding of the Iraqi army and the security bodies"
former colonel in secret police
Amnesties have succeeded in many countries. Militants once considered outlaws landed top jobs in government.
In Kenya, South Africa and Cyprus they even became president. Some landed the
Nobel Peace Prize.
"Not to push the point too far, but George Washington led the American insurgency and went on to become our first president," said James Dobbins, a veteran diplomat who served as the Bush administration's special envoy for Afghanistan.
There is wide acknowledgment that US occupation chief Lieutenant Paul Bremer's disbanding of Iraq's army and security services was a mistake, and triggered intensified fighting against the US-led occupation as a national cause. Sada added that some Iraqis also fought for money and out of revenge.
"Some people were cheated, some were misled. Some did this because they had no salaries, no food, no bread," Sada said.
There appears to be little controversy about pardoning rebels who were not actual killers of US or Iraqi security forces. Sada said it was "no problem" to offer amnesty to rebel financiers and those storing heavy weapons in their homes.
But it remains to be seen whether many hard-core Iraqi insurgents, numbering around 5,000 according to a recent US estimate, will take Allawi's expected offer.