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TOKYO, Japan (CNN) -- Japan is standing by its refusal to withdraw its troops from Iraq, saying it would be "playing into the hands of the terrorists" who have threatened to kill three Japanese hostages if the forces remain.

Hundreds of demonstrators staged protests Friday demanding the withdrawal of troops from Iraq.

Japanese reacted in shock and anger at the videotape showing three Japanese nationals held hostage at gunpoint and threatened with knives.

The video was delivered to the Arab television network Al-Jazeera with a written demand: Withdraw Japanese troops from Iraq within three days, or the hostages will be burned alive.

The three Japanese were among 12 foreign nationals kidnapped in the last two days in various incidents within Iraq, a seemingly new tactic by insurgents to try to drive a wedge in the U.S.-led coalition.

Prime Minister Junichiro Koizumi defended the government's position, when a reporter asked the Japanese leader if "push comes to shove, you wouldn't withdraw?" "We must ensure and do all it takes so it doesn't come to that," Koizumi said.

Japanese Cabinet secretary Yasuo Fukuda addressed the dilemma when questioned about the dilemma at a regular news briefing Friday.

"Are you saying we should give in to them at the first threat they present to us?" he asked reporters. "That's playing into the hands of the terrorists. That is what the terrorists are waiting for us to do. Are you saying we should give in to them?"

Japan has more than 500 troops on the ground, part of a 1,000-strong contingent heading to Iraq for humanitarian missions.

The approval of troops stirred up controversy with many critics arguing that the dispatch violates the nation's pacifist constitution.

Opinion polls showed most Japanese were against the Iraq war and also opposed to the deployment of troops. Despite the public's initial opposition, Japanese Foreign Ministry spokesman Hatsuhisa Takashima said most people now support the Self-Defense Forces in Iraq.

"With the television showing the people of Iraq welcoming the Self-Defense Forces, it has become very popular," Takashima said.

"More than half of those surveyed support the idea of Self-Defense Forces being in Iraq, and indeed right now there aren't too much calls for the withdrawal among Japanese public."

Video of the three Japanese hostages shows them being manhandled, humiliated and threatened with guns and knives -- at times, the knives pressed to their throats.

A statement from a group calling itself the Mujahedeen Squadrons said it wants Japan to pull its troops from Iraq or it will burn the three hostages alive.

The names of the three -- seen on passports in news footage -- are Koriyama Soichiro, who has a press card issued in Jordan for Weekly Asahi; Imai Noriaki; and Takato Nahoko, a woman.

CNN Correspondent Atika Shubert contributed to this report

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