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The Republican Party suffered a new jolt Thursday with the dramatic dropout of ex-drug czar William Bennett as President Bush's designated new chairman of the party.

"It's a major embarrassment," said a high White House official after Bennett unloaded his political bombshell at the White House that he would not become party chairman because of potential conflicts of interest with his business plans.

Bennett's move Thursday sent tremors through the party, already shaken by congressional and state election losses last month and infighting among conservatives and moderates.

Republicans scratched heads in disbelief when they heard the news. Democrats, who have lost five of the last six presidential elections, called it a sign of disarray.

Bennett, 47, a one-time Democrat and educator in private life, was to be formally elected party chairman at a meeting next month of state leaders. The job would pay $125,000 a year.

"It is appropriate that Bill Bennett's tenure at the Republican National Committee lasted about as long as most of President Bush's campaign promises," Democratic party chairman Ron Brown said,

He added Bennett's departure speaks volumes about the "new paralysis" in Republican ranks.

One Republican source said Bennett wanted to write and accept large speaking fees from business and other groups while at the same time serving as party chairman, and White House ethics officials said this could pose problems.

At a meeting of Republican governors in Pinehurst, N.C., Monday, Bennett gave no hints, as he outlined conservative philosophy, that he might not take the job.

One White House official started circulating a possible new choice for party chairman -- whose job is to coordinate party policy with Bush and the White House, raise campaign financing and get Republicans elected.

He suggested that former Republican Rep. Tom Loeffler, 44, a Texas conservative, was under consideration as party leader.

It was only two weeks ago that Bush announced he was designating Bennett as party chairman to succeed Lee Atwater, Bush's 1988 campaign manager who has an inoperable brain tumor. Bennett earlier had announced he was leaving the post of drug policy coordinator.

The selection of Bennett to the job, whose formal title is Chairman of the Republican National Committee, was hailed by party members as a major triumph for Bush and a way for him patch up troubles with his conservative base.

Conservatives have been angered with Bush since last October's budget battle -- which Republicans called "a debacle" -- when Bush reversed his campaign pledge of "no new taxes."

Political analyst Stuart Rothenberg said the selection of the party chairman will point to which direction Bush is heading in the 1992 presidential campaign when Bush is expected to seek a second term.

This jolt comes as Bush is wrestling with the Persian Gulf crisis and during a time when his popularity has been on a roller coaster since record high approval ratings earlier this year. Bush's approval plunged during the budget debate but recently rebounded over his handling of the gulf crisis.

Bennett was education secretary under Ronald Reagan and was controversial as "drug czar" under Bush by promoting tough law enforcement tactics over treatment for drug users as a way to combat the drug menace.

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