ST. CLOUD, Minn. (Reuters) - President Bush said on Thursday freedom was on the march in Iraq even as a U.S. intelligence report depicted a bleak outlook for the country's future.

Bush insisted the U.S. strategy in Iraq, where more than 1,000 U.S. troops have died, was working as he campaigned in Minnesota, a traditionally Democratic state that Republicans are targeting in the Nov. 2 election.

"In Iraq, there's ongoing acts of violence," Bush told a rally here. But he added, "Freedom is on the march," emphasizing his campaign image as a "war president" in the election battle against Democratic challenger Sen. John Kerry.

Bush spoke after details of a classified report by the Central Intelligence Agency surfaced which outlined a grim future for the U.S.-occupied country.

The document, which was prepared for Bush in July, cited a worst case scenario of a slide into civil war and said the most optimistic outlook involved continued instability and security concerns, according to officials who have seen the report.

Bush did not mention the intelligence report in his speech at the rally but White House spokesman Scott McClellan said he disagreed with its pessimistic assessment.

"The Iraqi people are proving that those scenarios are wrong by the progress that they are making to build a better future," McClellan told reporters.

Adding to worries about security in Iraq, two Americans and a Briton were kidnapped from a wealthy neighborhood in Baghdad. In addition, U.N. Secretary General Kofi Annan questioned whether elections could go ahead there in January because of deteriorating security.

HOPEFUL SIGNS

But Bush cited a "strong" leader in interim Iraqi Prime Minister Iyad Allawi and the fact that elections are scheduled for January as some of the hopeful signs.

Kerry campaign spokesman Phil Singer accused Bush of rushing to war without a plan. "It's time for him to start explaining what he's doing to stabilize the situation on the ground in Iraq," Singer said.

Kerry voted in favor of a resolution giving Bush authorization for the war but he has since lambasted Bush for the way he carried out the war and its aftermath.

At the rally, dozens of anti-Bush protesters stood outside carrying signs that read, "Preemptive Peace" and "Iraq Has Nothing To Do With Our Freedom."

Bush lost Minnesota to Democrat Al Gore by 2 percentage points in 2000. No Republican presidential candidate has carried it since Richard Nixon in 1972.