BAGHDAD, Iraq (AP) _ Jubilant Iraqis watched food prices drop and the value of their currency rise on Tuesday, a wave of optimism washing across the country over an oil-for-food deal with the United Nations.

``I feel good,'' farmer Mohammed Ali exulted. ``People will be able to eat and prices will go down.''

The government hailed Monday's deal as the first crack in U.S.-led international sanctions imposed six years ago to punish Iraq for invading Kuwait: Baghdad will be allowed to pump $2 billion worth of oil over six months to buy desperately needed food and medicine.

The accord was also warmly received across the Middle East, where sympathy for the Iraqi people's suffering has overshadowed hostility toward Saddam Hussein, who for years had rejected a U.N.-supervised oil-for-food deal as an infringement on Iraq's sovereignty.

News of the accord had an immediate impact on the life of ordinary Iraqis.

Food prices plunged. A pound of sugar cost 125 dinars, down from 210 on Monday and 450 10 days ago. The price of flour also went down, from 180 dinars a pound 10 days ago to between 90 and 100 on Tuesday.

The dinar, meanwhile, grew stronger, trading at 500 to the U.S. dollar on Tuesday. A day earlier it was trading at almost 800 to the dollar. In January, it took almost 3,000 dinars to buy one dollar _ an all-time low.

There was more good news. The price of gold, a traditional haven for Iraqis during hard times, plunged on the heels of the oil-for-food deal. A mithkal _ a 5-gram unit used in Iraq _ of 21-carat gold dived to 24,000 dinars from 36,000 a day earlier.

``Today, we have a crack in the wall of the sanctions,'' crowed the headline in the government-run Al-Jumhuriya newspaper. ``Tomorrow, we will bring it down.''

Celebrations in the capital Baghdad began Monday evening soon after government radio announced the agreement. Iraqis fired their guns into the air, a traditional expression of joy. Crowds sang and danced in the streets through the night.

Iraqis ``shall never forget the suffering as we look toward the future,'' said Um Ramez, a 55-year-old housewife. She then joined a crowd chanting ``May God bless the president, may God grant him a long life.''

While Iraqi support for the agreement appears virtually unanimous, some lamented that a deal hadn't been reached earlier.

``This should have been done a long time ago,'' Hotham Mohammed Saleh, a government employee, said as she broke away from a circle of dancers. With tears in her eyes, she said she had sold her furniture last year to feed her five children.

``It took me 15 years to put my house together, and in less than two months I sold it all,'' she said. ``At least I did not have to sell the house.''

Before the 1991 Gulf War that routed Iraq from Kuwait, the average annual income in Iraq was around $3,000. Today, a typical monthly salary for a civil servant is about $10.