NEW YORK (Reuters) - Secretary of State Colin Powell said on Tuesday the United States cannot wilt in the face of the Iraqi insurgency and suggested critics of the war in Iraq were becoming rattled and defeatist.

Powell spoke after senators from President Bush's Republican party criticized U.S. policy in Iraq, where a U.S. hostage was beheaded on Monday and his captors threatened to kill an American and a Briton if their demands are not met.

"We can't just wilt in the face of this kind of challenge, we have to meet the challenge," Powell told ABC's "Good Morning America" program.

Bush was expected to defend his decision to invade Iraq and topple former Iraqi leader Saddam Hussein last year as well as the U.S.-backed war that ousted the Taliban regime in Afghanistan during a speech on Tuesday at the United Nations.

U.S. Sen. John Kerry, Bush's Democratic opponent in the Nov. 2 U.S. presidential election, on Monday launched his sharpest assault yet on what he called the Republican president's "arrogance and outright incompetence" in Iraq.

Three influential Republican senators criticized mistakes in Bush's policy on Sunday and one, Senate Foreign Relations Chairman Richard Lugar of Indiana, cited "incompetence" in the U.S. failure to spend more money to reconstruct Iraq.

"The fact is, we're in deep trouble in Iraq ... and I think we're going to have to look at some recalibration of policy," Republican Sen. Chuck Hagel of Nebraska said on Sunday.

'INSURGENCIES ARE TOUGH'

"It is a difficult struggle that we are in right now. There is no question about it. Insurgencies are tough," Powell said. "But to say that we can't deal with it, this sort of attitude that we are on the verge of defeat, is absolutely wrong."

"This is the time to not take counsel of our fears and say everything is falling apart," Powell added.

Sen. Joseph Biden from Delaware, the top Democrat on the Senate Foreign Relations Committee, also speaking on "Good Morning America," said he was tired of the Bush administration's rhetoric on Iraq.

"We're all saying the same thing: 'Mr. President, unless you get your act together we are going to lose,"' Biden said, saying the administration has been slow to train Iraqi forces, spend U.S. reconstruction funds and enlist allies.

Video footage released on Monday showed U.S. contractor Eugene Armstrong sitting blindfolded on the floor in an orange jumpsuit, in front of standing hooded gunmen, one of whom then sawed off his head.

The Tawhid and Jihad group led by al Qaeda ally Abu Musab al-Zarqawi said in the footage of Armstrong's killing it would behead the other two hostages within 24 hours unless female inmates were released from the Abu Ghraib and Umm Qasr jails.

The U.S. military says it does not hold females in either facility and has only two women in custody in Iraq.

A U.S. intelligence report prepared for Bush in July and leaked to the media by U.S. officials last week offered a gloomy outlook for Iraq through the end of 2005, with the worst scenario being a descent into civil war.

Asked whether the administration was being candid on Iraq, U.S. national security advisor Condoleezza Rice said the assessment was an attempt to look at the big picture.

"That is no evidence that the Iraqis are falling into civil war. Quite the opposite. Kurds and Shia and Sunnis are working together to build a new Iraq," she told NBC's "Today" show.