"Improved security and stability is not enough to win the counterinsurgency," the report said. "Political progress must also be achieved to reinforce and complement progress in securing the Iraqi population."

"There has been little national-level political progress in passing key legislation and implementing government reform," it said.

"Efforts within Iraq's political process to seek consensus remain complicated by continued sectarian divisions and violence that exacerbates those divisions," it said.

The report said the most promising political developments were at the local level, where the US military is pursuing a so-called "bottom up" approach to reconciliation with Sunni insurgents disenchanted with Al-Qaeda.

The findings generally tracked with presentations to Congress last week by General David Petraeus, who proposed a gradual drawdown of US surge forces by July 2008 on the strength of the improved security.

An additional 30,000 US troops were deployed to Iraq starting in February to try to halt a slide toward civil war and give Iraqi political leaders "breathing space" to achieve national reconciliation.

Currently 169,000 US troops are in Iraq.

"As a result of these efforts, there are improvements in measures of security; for example, sectarian killings and civilian casualties have decreased," the report said.

There has been "some improvement" in Iraqis ability to go about their daily life, it said.

"Overall there continues to be a downward trend in total attack incidents with eight of the past 11 weeks since June 15, 2007 showing decreases down to August 2006 levels," it said.

It said the surge has started to create conditions that will allow the government to make reforms and pursue reconciliation initiatives.

But key pieces of legislation aimed at forging reconciliation -- such as a Hydrocarbons Law governing the sharing of oil revenues, and progress on the status of the disputed northern city of Kirkuk -- "will probably remain stalled in the near term," it said.

"Prospects for success in the near term hinge upon the return of key political blocs to the Maliki government," the report said.

The government of Prime Minister Nuri al-Maliki faced a fresh crisis Monday with the withdrawal of followers of Shiite cleric Moqtada Sadr from the main Shiite bloc in parliament.

Sunni ministers bolted from the Maliki government in August, leaving Maliki with a weakened coalition of Shiite and Kurds.

related report
US could make 'further withdrawals': Iraqi FM
Iraqi Foreign Minister Hoshyar Zebari said Monday he was not surprised that some American troops were being pulled out of Iraq next year and mentioned the possibility of further withdrawals.

In a speech on Thursday, US President George W. Bush said that the size of the US force in Iraq would decrease by about 21,500 combat troops by mid-2008, with the first 5,700 soldiers leaving Iraq in December. Most of those soldiers had been scheduled to rotate back to the United States at that time.

"The declaration that there will be a withdrawal of a number of US troops from Iraq has not come as a major surprise to us," Zebari said after meeting his Czech counterpart Karl Schwarzenberg in Prague.

"In fact that was expected in view of the fierce political debate and of domestic pressure and also due to the (...) military situation on the ground.

"There could be some further withdrawal also, but we have been assured by the US administration that the commitment would remain," he added.

Currently 169,000 US troops are in Iraq, up from 130,000 before Bush announced a "surge" of US forces in January.

Defense Secretary Robert Gates played down Monday his own suggestion before the weekend that US forces in Iraq could be cut to about 100,000 by the end of 2008.

"What I said was I hoped the conditions would improve in Iraq to the extent that not only could we complete the drawdowns that General (David) Petraeus would like to make, but we would continue thereafter," Gates said on Fox News.

"So everything depends on the conditions on the ground."

Zebari said he hoped that as American troops left, the Iraqi security forces would be able to step up to the plate.

"On the other hand we are considering some long term arrangement between Iraq, the United States and other countries for some joint security partnership that would be reassuring to us," he added.