The exercise was part of what both sides called an unprecedented effort to ensure a smooth handover of power to Obama on January 20 in the first transition to take place since the attacks of September 11, 2001.

The catastrophic scenario has US cities hit by terrorists using improvised explosives, White House spokesman Scott Stanzel said before the drill.

'These exercises take place in current day, and the scenario is a hypothetical attack on several American cities, on transportation infrastructure and other economic targets,' Mr Stanzel said.

'So it is how the federal government would respond in the event of attacks on numerous American cities.'

Top officials slated to serve in the next administration were to receive a briefing on the scenario in the White House 'Situation Room,' the nerve center for managing emergencies.

Then Bush administration officials were to join them for the drill that was to last about two and a half hours, Stanzel said.

Afterward, both teams were to discuss government responses to other scenarios, including attacks involving nuclear, chemical or biological weapons, an outbreak of pandemic flu, hurricanes or other natural disasters, he said.

The exercise was purely hypothetical and was not organised in response to any new threat to the United States or the presidential inauguration ceremonies next week, Mr Stanzel said.

Elaborate security measures are planned in Washington for Obama's inauguration, with up to two million people planning to converge on the US capital to witness the nation's first African-American president being sworn into office.

Mr Stanzel said the administration regularly holds such exercises but wanted to include Obama aides to prepare them for their new roles.

The Bush administration, which says its biggest achievement was to prevent another terrorist strike on US soil since the 9/11 attacks, has repeatedly warned that the country remains under threat.

And officials have also said the delicate transition period from one administration to another poses a particular risk.

Bush administration officials also have bad memories of their transition with former president Bill Clinton's team and are keen to conduct a well-organised transfer for the next president.

Mr Obama's designated chief-of-staff, Rahm Emanuel, publicly thanked Mr Bush's aides not only for Tuesday's exercise but for how they have managed the entire transition.

'This is only one exercise. The administration has - from every agency to every department to the White House staff - has been unprecedented in its cooperation and helpfulness in making sure this is smooth because we all, in the end of the day, work for the American people,' Mr Emanuel, standing next to Bush's chief-of-staff Josh Bolten, told reporters before the exercise got underway.

Mr Bolten said he and his counterpart 'have been working closely together over the last several weeks to fulfill the mandate from our bosses to effectuate the smoothest and most effective transition in the history of the presidency.'

Mr Emanuel said partisan divisions had been set aside.

'Whether we're Democrats or Republicans, we will have our policy differences. There is no policy difference when it comes to protecting the American people,' said the former Democratic lawmaker.

Mr Bolten had first suggested the joint exercise immediately after Obama's electoral victory on November 4.

The Bush administration began transition efforts over the summer - earlier than previous presidencies - holding talks with aides for both presidential candidates, Obama and Republican Senator John McCain, according to Bolten.

After the election, close to a thousand members of Obama's team were given access to information from nearly 100 government agencies and clearance was expedited for key aides working on national security for the next president, he said. -- AFP