WASHINGTON - Watch what they do, not what they say.

When President Bush promised to veto Democrats' homeowner rescue bill, it may have sounded like the measure was dead.

But in a competitive election year clouded by a crippled economy, Republicans are as anxious as Democrats to strike a deal on an issue that matters to their constituents. By threatening to veto the legislation, Bush gained leverage in what promises to be a high-stakes negotiation between the White House and congressional Democrats on a compromise.

So now the bargaining begins.

Both sides have powerful incentives to reach an agreement. Democrats are eager to show voters they can use their congressional majority to deliver concrete relief. Bush wants to protect his reputation - and Republican candidates' chances in November - by responding to a leading concern.

The same impulses were at work earlier this year when House Speaker Nancy Pelosi, D-Calif., teamed with Treasury Secretary Henry Paulson and Rep. John A. Boehner, R-Ohio, the minority leader, to reach an uncommonly smooth and swift agreement on a $168 billion economic aid package with tax rebates for most American wage-earners.

The White House has been hostile to the homeowner aid plan by Rep. Barney Frank, D-Mass., which would offer government insurance on $300 billion in new mortgages so strapped homeowners could refinance into more affordable, fixed-rate loans.

Frank argues that his plan, which passed the House Thursday, will prevent hundreds of thousands of foreclosures and help stabilize the housing market. Bush calls it a burdensome bailout for lenders that would open taxpayers to too much risk.

Behind the pitched rhetoric, however, the administration and Frank agree on the central concept of a homeowner rescue. Both want the Federal Housing Administration, the Depression-era mortgage insurer, to help more borrowers refinance into loans they can afford. Bush has twice relaxed the FHA's standards to allow more such "workouts" for people facing default due to mortgage rate resets or other economic hardships.

The president has said he sees his veto pen as a way to preserve his influence in big legislative fights - such as his showdown with Democrats last year over a children's health program that enjoyed substantial Republican support - as his term draws to a close. The veto, he said after nixing that measure in October, is "one way to ensure that I am relevant; that's one way to ensure that I am in the process, and I intend to use the veto."

Even as Republicans were lining up on the House floor to complain that Frank's plan rescued homeowners who overextended themselves, the Department of Housing and Urban Development was finalizing new rules to let the FHA do just that - albeit for a fraction as many borrowers.

When it came time to vote, 39 Republicans broke with Bush to back the plan, many of them saying they were shelving their philosophical objections to a big-government intervention because their constituents were hurting.

"In my view, this is the only train leaving the station," said Rep. Ric Keller, R-Fla.

It wasn't enough to give Democrats the edge they would need to override Bush's veto, but it was an indication that many Republicans desperately want to enact a housing rescue.

"We know it's not a great bill, but we also know that by voting for it, our constituents will see we're aware of the problem; and our Democratic colleagues know if it is vetoed, we are in a position to work with them on something that can get signed," said Rep. Thaddeus G. McCotter, R-Mich.

Lobbyists and congressional aides working on the measure see potential for a compromise that might shrink the size and scope of the package - now estimated to help 500,000 homeowners at a cost of $2.7 billion over the next five years - but keep its essential elements intact. Frank, who has a strong working relationship with Paulson and Federal Reserve Chairman Ben Bernanke, is uniquely positioned to reach such a deal.

Frank's plan has "some things in it that we could support," said Dana Perino, Bush's spokeswoman, but she added that, "it takes what we would like to do and puts it on steroids, and puts too much taxpayer dollars at risk.

"We'll continue to work with Congress to see if there is something that they could pass that the president could sign, sure," Perino said.

The measure still must make its way through the closely divided Senate, where virtually everything requires a bipartisan majority of 60 votes to pass. Sen. Christopher J. Dodd, D-Conn., the Banking Committee chairman, is working to reach an elusive agreement with Sen. Richard C. Shelby of Alabama, the panel's senior Republican, on a bill similar to Frank's.

Political impulses still have the potential to derail any deal. Democrats would have a field day hammering away at Republican candidates who opposed a housing rescue, while GOP lawmakers could point to its failure as evidence that Democrats can't get anything done.

With more than 1 million home foreclosures forecast in 2008, Frank says he sees the makings of a broad compromise, but it's still possible the two parties could choose finger-pointing over legislating.

"The fear I have is that (Republicans) believe they're in such political trouble themselves that they just decide they're going to say no and blame us," Frank said.