Sectarian slaughter rages in Baghdad and religiously mixed areas, carried out by shadowy militias and death squads believed linked to Shiite and Sunni politicians and clerics. Prime Minister Nouri al-Maliki has done little to curb the militias — some linked to his fellow Shiite allies.
In the dusty towns of Anbar province, Sunni Arab insurgents ambush American and Iraqi forces daily. An estimated 100,000 Iraqis flee the country every month to escape the violence, according to the Washington-based Refugees International. The U.S. death toll neared 3,000 in December.
Gone is talk of "staying the course," a phrase which President Bush himself has disowned. Gone too is the hope that the mere establishment of a democratically elected government of national unity would be enough to stem the bloodshed.
Instead, a bipartisan commission, led by longtime Bush family friend James Baker, has described the situation as "grave and deteriorating" and warned that America's ability to influence events in this turbulent country "is diminishing."
Equally damning, the commission accused the Pentagon of significantly underreporting the level of violence. After nearly four years of war, the U.S. "still does not understand very well either the insurgency in Iraq or the role of the militias," the commission said.
The situation has become so desperate that some U.S. politicians believe the best course is to give up on a unified Iraq and partition the country along religious and ethnic lines — even though the idea finds little support among the majority of Iraqis.
That bleak reality is vastly different from what U.S. officials were hoping for a year ago.
With a new constitution ratified and a freely elected parliament in place, hopes ran high that 2006 would mark a turning point in the U.S. campaign to build a stable democracy on the wreckage of Saddam Hussein's dictatorship.
U.S. officials even spoke of reducing U.S. troop strength in Iraq below 100,000 by the end of 2006, and Iraq's national security adviser confidently assured reporters of a "sizable gross reduction" in American forces here.
Those hopes were dashed after Feb. 22 when Sunni Arab extremists blew up a sacred Shiite shrine in Samarra, a Sunni city north of Baghdad. That brazen attack outraged the country's long-suffering Shiite majority, which had endured suicide attacks, car bombings and assassinations by Sunni religious extremists, including al Qaeda in Iraq.
The Samarra blast triggered a wave of sectarian reprisal killings that has led many scholars and political analysts to conclude that the country is now in a low-intensity civil war — with the 140,000 U.S. troops caught in the middle.
In the wake of Samarra, Iraq's leading Shiite clerics, who had cautioned patience during years of vicious sectarian attacks, could no longer curb the tide of Shiite retribution.
The bombing and the frenzied vendetta that followed also sabotaged American efforts to promote trust among Sunni Arab, Shiite and Kurdish politicians at a critical moment. Iraq's leaders were just beginning the process of forming a government of national unity after the December parliamentary elections.
U.S. Ambassador Zalmay Khalilzad, who had worked tirelessly to promote a political agreement, said repeatedly that a unity government of Shiites, Sunnis and Kurds offered the best chance for Iraq to build a stable democracy on the wreckage of Saddam Hussein's dictatorship.
Although negotiations continued and a government took office three months later, sectarian bitterness runs so deep that al-Maliki has been unable to forge an effective administration and see through a program of national reconciliation.
Instead, political momentum belonged to the sectarian extremists — armed gangs of Shiites and Sunnis who kidnap, murder and intimidate each other. The United Nations estimated that by last summer, an average of 100 people were dying each day — most of them in the Baghdad area.
Scores of bodies appear almost daily in vacant lots and sidestreets of the capital, often with horrific signs of torture — holes driven into the skull and eyes gouged out.
Iraqis fear the extremist goal is to divide Baghdad, a religiously and ethnically mixed city, into a mostly Shiite zone east of the Tigris river and a largely Sunni area to the west.
Al-Maliki promised to restore order and as one of his first acts, he announced a major crackdown to rid the capital of the killers. He cited the threat posed by al Qaeda and other Sunni religious extremists.
That angered Sunni leaders, who complained that the real threat was posed by Shiite militias, including the Mahdi Army of radical anti-American cleric Muqtada al-Sadr, a close al-Maliki ally.
With the Iraqi army and police riddled with Shiite militiamen, many Sunnis saw the security operation as a cover to crack down on their community. Many Sunnis who had stayed out of the insurgency took up arms to protect their neighborhoods. Many Shiites did the same.
But the crackdown faltered, forcing the U.S. command to send thousands of American soldiers into the streets, some from flashpoints in the insurgent-ridden Anbar province. That led to a spike in U.S. casualties — more than 100 dead in October alone — but failed to stop the violence.
U.S. soldiers complained that the Iraqi troops weren't motivated. Privately, Americans complained that they simply didn't have enough troops of their own to quell the violence.
With casualties rising, opposition to the war soared in the United States. Congress established the Baker commission to study ways to reverse the slide, and the Republican loss of the House and Senate in the October elections fueled cries for a course change.
As the year drew to a close, the commission released its recommendations: more regional diplomacy, shifting the U.S. military role from combat to training, and pressing the Iraqi factions to compromise on the nation's future.
But the commission offered no solution to the core problem — the absence of a genuine political agreement among Iraq's sectarian and ethnic factions.
Instead, the country is locked in a bitter struggle for power as all sides try to ensure a strong position for the day when the Americans go home. The Baker commission recommended that the U.S. reduce economic and military aid if the Iraqis can't reach such an agreement.
"The U.S. effectively sent a bull in to liberate the china shop," former Pentagon analyst Anthony Cordesman said. "And the study group now called upon the U.S. to threaten to remove the bull if the shop doesn't fix the china."
Robert H. Reid