Reached in London, Allawi says it was all “total nonsense,” a smear campaign by foreign intelligence agencies to discredit him. Allawi said he was in England to receive treatment for health problems, nothing more. With that out of the way, he didn’t hesitate to tell NEWSWEEK’s Michael Hastings what he’d do if he were still in charge. EXCERPTS:

NEWSWEEK: You were one of the first Iraqi leaders to publicly say the country was in a civil war. How do see the situation now?

Ayad Allawi: I said that Iraq is on a level of [escalating] conflict and we should not get to the point of no return. Once we get to the point of no return, it will spell disaster, not only for Iraq but also for the region. As you can see for yourself the situation is not calm there. The conflict and sectarian violence is increasing. And it will grow as long as militias are swarming the streets of Iraq, and the institutions are sectarian. I think we should keep our eye on optimism. We should really work very hard to salvage the country. It is salvageable, it is still manageable. But unfortunately there are regional forces that are trying to complicate issues in Iraq, including smearing me personally with the rumor that I am leading a coup. If it was the first of April I would say it was an April Fool joke. I am here in London spending time between hospitals. Really this is something that never ever crossed my mind. We want the country to be stable. We want the country to be peaceful. Plus it is fantasy to think of a coup thing in Iraq. This is where people are trying to undermine our own position in Iraq and indeed the position of the Coalition. It is really part of a much larger war against decent forces, and civilized forces, and democracy, and the rule of law.

There was a Web-site news post that said you were in London plotting a coup, and another Sadr leader said that a coup was foiled.

Total nonsense. To plot a coup, I don’t sit in London. I’m not going to mount two armored divisions from London, one fighter squadron from Paris, three special-forces battalions from Rome to make a coup. [ Laughs .] I would be sitting in Baghdad trying to make coup. And trying to make a coup against who? Against 200,000, 150,000 Coalition forces? Against people who helped us rid Iraq of tyranny? Against [Gen.] George Casey, a dear friend of ours?

Who’s responsible for spreading the rumor?

It can’t be coming from one individual or two individuals or even a party or two parties. We have seen the rumors [before], but this one was more wide spread, which indicates there is an institution behind it, a government with an intelligence capability and network rather than a political group. I leave it to you to guess where this is coming from. I don’t know but the rumors of this coup [are] an application of a foreign intelligence group or institution. This is really having objectives of undermining nonsectarian forces and undermining the credibility of the U.S. You can guess who these guys are.

I’m guessing you’re talking about Iran?

It’s up to you to guess. I don’t want to name names. I categorically state to you this is fictitious, its clear objective is undermining my position and the U.S. and to undermine the concept of democracy itself. They don’t have any means to argue and prevail in a civilized way. They resort to rumors, assassinations, killings as is happening in this country.

You’re known as a leader who almost all sides respect—Kurd, Sunni, Shia. What do you see as your role in Iraq politics now?

We want to keep the political process continuing as much as we can, and be as inclusive as possible. I try to exert my influence on the friends I have in Iraq in various interest groups to try and bring about a stable, peaceful and prosperous country. Unfortunately I don’t have a position in the government.

Frustration has been growing against Prime Minister Nuri al-Maliki’s government. Is his government effective?

The government is based on what happened in the elections, and whether you think the elections are right or wrong is a different issue altogether. This is government based on the Iraqi majority, and the majority needs to sort out their house and keep it in order. I support the stability in the country. We are frankly in one boat, and if this boat sinks, the whole country is going to sink. We should be as inclusive as possible. I think the role of militias should end. I think building institutions is becoming of paramount importance. I believe very strongly that sectarianism is the worst scenario that can happen to Iraq. It is not going to remain within the boundaries of [Iraq.]

Do you think this current government is serious about stopping militias?

It’s not a matter of thinking. We need to see actions on reconciliation. We need to see deeds. I wrote a letter to the prime minister, a road map on how to move on reconciliation, which incorporates getting rid of militias. Otherwise the reconciliation is not going to take a step forward in the presence of militias, and the presence of sectarian groups. What complicates matters as you know are the evils forces of terrorism, of Al Qaeda and the allied groups.

If you were prime minister now, how would you dismantle the militias?

We need to first of all prepare a big financial package to rehabilitate and buy the arms from militias and to rehabilitate their employees. Secondly, we need to use force whenever force is necessary and it is needed to be used to dismantle militias. But you should first have sufficient funds to really find them suitable alternatives, as we have done in the old days when I was in government. I did this in Sadr City, in Najaf, I did this in Basra, I did this in Nasiriya, and so on. The third thing is to really embark on a course of rehabilitation to get the militias in the private sector or civil government. Some of them could definitely be employed by security services, but the key issue here is to have funds, to have the law ready, to have the use of force, and really to move on. [This has to go] hand in hand with building institutions [that] everybody in Iraq can trust, whether it’s police or army. Without dealing with the militias, the talk of reconciliation remains a very general topic of discussion rather than actual deeds.

Recently, you traveled to Amman, Beirut and London. What was the purpose of those visits?

To Beirut, was to show solidarity with the government and the people of Lebanon and the forces of moderation in Lebanon. I went to Jordan and other Arab countries because I am very determined that Iraq is an Arab and Islamic country and should respect its Arabic debt and Islamic debt and should be a center for peace in the whole region. I worked very hard for the Sharm al-Sheikh conference to take place with the regional neighbors plus the G8, and the U.N. and the Arab League. This is all really to introduce a regional understanding for security. I think it high time to strengthen the axis of moderation in the Arab and Islamic world.

You’ve been doing this as an unofficial statesman for Iraq. Are you hoping to get back into the thick of Iraqi politics?

I will remain dedicated to Iraq. This is my country, and I will continue to [work for it] if I am in office, or out of office, in parliament or outside of parliament. I will continue to work against terrorism and extremism regardless of where it comes from. I was victim of terrorism myself, of an assassination attempt. I will continue to work with the civilized world in whatever capacity I can to try to restore sanity to the world and our region. Once my health recovers, I’ll be back and do whatever I can do.