There appears to be new hope for Kenneth Bigley, the British hostage held in Baghdad, after the Iraqi government said it was ready to meet the demands of the kidnappers.

The Iraqi justice minister said the government would soon free Dr Rihab Taha, a microbiologist known as "Dr germ", and that it also hoped to release Dr Huda Ammash, known to US Intelligence as "Mrs anthrax".

The terrorists have murdered two American hostages in the past two days.

Downing Street reiterated last night that the government did not negotiate with terrorists.

"We do not do any sorts of deals with hostage-takers or terrorists at all," a spokesman said.

"The prime minister would not contemplate entering [into] any kind of deal with these people."

Throughout yesterday the government came under increasing pressure to intervene as Bigley's family slammed Tony Blair for refusing to negotiate with the hostage-takers.

"He could and should be doing more to save Ken," Bigley's brother, Paul, said.

"Mr Blair talks to IRA terrorists, so why not offer an olive branch to save two innocent men's lives? Blair should be ashamed of himself, so should Bush. If my brother dies, his blood is on Blair’s hands."

The prime minister telephoned the family to tell them: "Trust me. I'm a family man as well."