Gates said that despite earlier plans to recommend Pace for a second two-year term as chairman, he instead was recommending Adm. Mike Mullen, currently chief of naval operations, to take over when Pace's term expires Sept. 30.
"I think that the events of the last several months have simply created an environment in which I think there would be a confirmation process that would not be in the best interests of the country," Gates said. "I wish it were not necessary to make a decision like this. But I think it's a realistic appraisal of where we are."
Pace is the latest casualty of the Iraq War, but he was brought down by Washington politics CBS News national security correspondent David Martin reports.
Gates said he had been told by Republican and Democratic senators that a confirmation hearing for Pace would be a "backward-looking and very contentious process."
The decision had been in the works for more than a couple of weeks, CBS News White House correspondent Mark Knoller reports.
Sen. Carl Levin, D-Mich., acknowledged such advice, saying he had gathered views from a broad range of senators. "I found that the views of many senators reflected my own," and confirmation would have focused on the past four years of war, he said.
It was Levin, the head of the powerful Senate Armed Services Committee who contacted the defense secretary and told him Pace's re-appointment would be ugly, CBS News correspondent Sharyl Attkisson reports.
But on the other side of the aisle, Sen. Lindsey Graham, R-S.C., also had reservations. He told Attkisson that it became obvious that Pace's confirmation would have been used to "retry every mistake of the war at a time when we need to look forward, not backward."
A spokesman for Sen. Hillary Rodham Clinton, D-N.Y., said she, too, believed it would have been a difficult re-nomination.
"When it comes to Iraq it's not enough for President Bush to change the cast, he must also change their script," said the spokesman, Philippe Reines.
Mullen has long been eyed for a promotion, and on Friday Gates praised him as having the "vision, strategic insight and integrity to lead America's armed forces."
The announcement still seemed to surprise some senior Pentagon officials who as recently as last week were convinced there would be a second term for Pace, the first Marine to serve as chairman of the Joint Chiefs. Pace will now retire when his term is up at the end of September.
Pace's departure will put nearly an entirely new slate of leaders and military commanders in charge of the war, which is now in its fifth year and has claimed the lives of more than 3,500 U.S. troops.
And, as Martin reports, ever since Gates replaced Defense Secretary Donald Rumsfeld as Secretary of Defense last year, every single one of the top commanders running the war has been replaced.
Since then, the Democrats have shown an eagerness to challenge President Bush's handling of the conflict and support among Republicans has waned as well.
Democrats have used recent military confirmation hearings, including one earlier this week, to blast the administration's handling of the war.
Senate Majority Leader Harry Reid added that senators, "will be looking very closely at Admiral Mullen and General Cartwright's views to make sure they are committed to changing course in Iraq. Both men must be advocates for our troops, not for a failed policy."
White House spokesman Gordon Johndroe said Gates "informed the president a little over two weeks ago that consultations had not gone well (with senators) and it was his recommendation that we not go forward with the renomination of General Pace."
Gates called National Security Council Adviser Steve Hadley in Heiligendamm, Germany, Thursday night, to talk about the timing of the announcement, and on Friday Hadley informed President Bush that they were going forward. "The president had already concurred" based on the earlier talks with Gates, said Johndroe, who was traveling overseas with President Bush.
"I am no stranger to contentious confirmations, and I do not shrink from them," Gates said. "However, I have decided that at this moment in our history, the nation, our men and women in uniform and General Pace himself would not be well served by a divisive ordeal."
Asked whether the developments indicated GOP support for the war was waning, Gates said, "No, I don't think it says that."
As chairman of the Joint Chiefs of Staff for two years, and vice chairman for the previous four, Pace has been involved in all of the key decisions leading to the 2003 invasion of Iraq and the planning for the post-Saddam Hussein era.
Johndroe said, "He is an example for all our men and women in uniform and has been an integral part of the president's national security team."
Pace had stirred controversy recently by saying that homosexuality is immoral and the military should not condone it by allowing gays to serve openly. He later said he should not have expressed his personal views and should have simply expressed his support for the military's "don't ask, don't tell" policy, which allows gays to serve if they keep their sexual orientation private.
Mullen was in Annapolis at the Naval Academy Friday when the announcement was made. His spokesman, Cmdr. John Kirby, issued a statement saying Mullen was honored.
Gates said Mullen "has a broad view of what the needs and requirements of the services are." To illustrate that, Gates said that when Mullen was recently asked by senior Pentagon adviser what he was most concerned about, he replied, "The Army."
The Army has been strained to the breaking point by soldiers' lengthy, repeated and difficult tours in the Iraq and Afghanistan wars.
Gates also heaped praise on Pace, who recently celebrated his 40th year as a Marine. "He has served our country with great distinction and deserves the deepest thanks of the American people for a lifetime of service to our country and for his leadership. I have thoroughly enjoyed working with him, trust him completely and value his candor and his willingness to speak his mind," he said.
Gates said he would recommend Gen. James E. Cartwright, currently the commander of the Strategic Command, to be vice chairman of the Joint Chiefs of Staff. He would succeed Adm. Ed Giambastiani, who is retiring.
The defense secretary said he had originally intended to name Giambastiani to a second two-year term, but Mullen's selection had foreclosed that possibility. Gates then offered Giambastiani another senior assignment, but the admiral declined the job. It is customary for the chairman and vice chairman to come from different branches of the service.
Other members of Congress were largely mum about the discussions with Gates prior to the announcement, preferring to offer praise for both Pace and Mullen.
Sen. John Warner, R-Va., said Pace had served with "the greatest of distinction." He added, "As we look to the future, in Admiral Mullen, we will have a new hand on the helm, a steady, well-trained hand that will guide and protect the men and women of all of our services, and their families."