IRAQ and the United Nations agreed yesterday to extend for six months UN relief operations for victims of the Gulf war and its aftermath, but they failed to break a deadlock over Iraqi oil sales to buy food and drugs.The six-month extension to a "memorandum of understanding" between Baghdad and the world organization was announced at a news conference by Prince Sadruddin Aga Khan, the UN official in charge of Gulf relief efforts. Prince Sadruddin said there had been no breakthrough in his talks with senior officials on Baghdad's bitter refusal to accept UN Resolution 706, which would allow Iraq to export oil worth $1.6 billion to buy drugs and food. He said that if the impasse continued, "the ultimate losers will be the Iraqi people." "We need funding, and for funding I would be grateful if Iraq would consider exports of oil," Sadruddin said. Iraq says thousands of the young and weak are dying because of shortages of food and drugs. "The government of Iraq may be held responsible for failing to take advantage of the window of opportunity - narrow and constraining though it may be - afforded by the arrangements for oil exports and imports of essential needs," he said. "In the political sphere, one of the parties to the recent conflict will continue to be blamed." Iraq says Resolution 706, which would entail UN monitoring at every stage of the oil sales and the import and distribution of essentials, is gross interference in its sovereignty. Iraqi officials have said the resolution would turn Iraq into a virtual UN protectorate. Sadruddin appealed to more Western states to release some $4 billion of Iraqi assets frozen in overseas bank accounts after Iraq's invasion of Kuwait last year.