U.S. Defence Secretary Donald Rumsfeld said any negotiated surrender of the southern Afghan city would have to meet U.S. requirements and it has been made clear that leaving Mullah Omar to "live in dignity" in Kandahar was not acceptable.
But he also did not rule out a negotiated surrender that would have a solution other than putting Omar in U.S. hands.
Until this week Omar had exhorted his troops to fight to the death against anti-Taliban forces backed by U.S. air power and Rumsfeld called him "the principal person who has been harbouring the Al Qaida network in that country. He does not deserve the medal of freedom."
The announcement that the Taliban was willing to give up the city came after negotiations between the Taliban and Hamid Karzai, the tribal leader named to head a new Afghan government.
As part of the agreement, Omar's life would be saved, a Taliban spokesman said. The White House said it opposed any amnesty and wanted him brought to justice.
"Both sides, the Taliban and Karzai, agreed to the surrender of Kandahar for the welfare of the people to decrease the casualties to life and to protect the dignity of the people," Mullah Abdul Salam Zaeef, the Taliban's former envoy to Pakistan, told reporters.
"Tomorrow the Taliban will start surrendering their weapons to Mullah Naqibullah, a famous commander. He will be in Kandahar tomorrow," Zaeef said. Asked about the fate of Omar, Zaeef said: "His life will be saved and he will be allowed to live with dignity. He is a mujahid, he has worked for the people of Afghanistan and he is not guilty."
Meanwhile, opposition commanders fighting the Taliban in Kandahar called a ceasefire yesterday after the Taliban agreed to surrender, a spokesman for former Kandahar governor Gul Agha told AFP.
"I have talked to commanders and they have told me that there is no more fighting today as a result of the talks," said Qayyum Jan. New Afghan interim leader Hamid Karzai told CNN Thursday that the Taliban militia had agreed to surrender Kandahar, its last stronghold.
But Karzai, when asked about an amnesty for Omar, said: "I have offered amnesty for the common man." He told CNN Omar must "clearly denounce terrorism and make explicitly clear that terrorism has brutalised Afghanistan society and destroyed our country. This is our demand".
White House spokesman Ari Fleischer, asked if Omar should be allowed to live in dignity, said President George W Bush "believes very strongly that those who harbour terrorists need to be brought to justice".
Traditional rivalries among anti-Taliban factions meanwhile threatened to crack apart the new interim administration before it had even met.
Two leaders condemned the carve-up of ministries in the government, which was approved on Wednesday in Bonn, Germany. Warlord Abdul Rashid Dostum, whose forces dominate much of northern Afghanistan, said his ethnic Uzbek faction was not fairly represented.
"We are very sad," Dostum told Reuters. "We announce our boycott of this government and will not go to Kabul until there is a proper government in place."
In London, British Prime Minister Tony Blair said the Taliban are in a state of collapse, signalling that he backed the United States' dismissal of an amnesty for Mullah Mohammad Omar. "It seems that the final collapse of the Taliban is now upon them. That is a total vindication of the strategy that we have worked out from the beginning," said Blair.
