● The first is at the national level in the form of legislation and the development of Iraq’s parliament. In September, we were disappointed that Iraq had not yet enacted some key pieces of legislation. In the last several months, however, Iraq’s parliament has formulated, debated vigorously, and in many cases passed legislation dealing with vital issues of reconciliation and nation building.

● A pension law extended benefits to individuals who had previously been denied them because of their service under the former regime.

● The Accountability and Justice Law (de-Ba'athification reform), passed after lengthy and often contentious debate, reflects a strengthened spirit of reconciliation, as does a far-reaching Amnesty Law.

● The Provincial Powers Law is a major step forward in defining the relationship between the federal and provincial governments. Passage of this legislation required debate about the fundamental nature of the state, similar in its complexity to our own lengthy and difficult debate over states' rights.

● The Provincial Powers Law also called for provincial elections by October 1, 2008, and an Electoral Law is now under discussion that will set the parameters for elections. All major parties have announced their support for these elections, which will be a major step forward in Iraq's political development and will set the stage for national elections in late 2009.

● In January, a vote by the Council of Representatives to change the design of the Iraqi flag means the flag now flies in all parts of the country for the first time in years.

● The passage of the 2008 budget, with record amounts for capital expenditures, insures that the federal and provincial governments will have the resources for public spending. All of this has been done since September. These laws are not perfect and much depends on their implementation, but they are important steps.

● Also important has been the development of Iraq’s Council of Representatives (CoR) as a national institution. Last summer, the CoR suffered from persistent and often paralyzing disputes over leadership and procedure. Now, it is successfully grappling with complex issues and producing viable tradeoffs and compromise packages. As debates in Iraq’s parliament became more about how to resolve tough problems in a practical way, Iraqi politics have become more fluid. While politics still have a sectarian bent and basis, cross-sectarian coalitions have formed around issues, and sectarian political groupings which often were barriers to progress have become more flexible.

● When viewed with a broader lens, the Iraqi decision to combat these groups in Basrah has major significance. First, a Shi’a majority government, led by Prime Minister Maliki, has demonstrated its commitment to taking on criminals and extremists regardless of sectarian identity. Second, Iraqi Security Forces led these operations, in Basrah, and in towns and cities throughout the south. British and U.S. elements played important roles, but these were supporting roles, as they should be.

● The operation in Basrah has also shaken up Iraqi politics. The Prime Minister returned to Baghdad from Basrah shortly before I left for Washington – and he is confident in his decision and determined to press the fight against illegal groups, but also determined to take a hard look at lessons learned. The efforts of the government against extremist militia elements have broad political support as a statement April 5 by virtually all of Iraq’s main political leaders – Sunni, Shi’a, and Kurd – made clear.

● A wildcard remains the Sadrist Trend – and whether the Iraqis can continue to drive a wedge between other elements of the Trend and Iranian-supported Special Groups. A dangerous development in the immediate wake of the Basrah operation was what appeared to be a reunification between Special Groups and the mainline Jaysh al-Mahdi (JAM). We also saw a potential collapse of the JAM “freeze” in military operations. As the situation unfolded however, Muqtada as-Sadr issued a statement that disavowed anyone possessing “heavy weapons” – which would include the signature weapons of the Special Groups. This statement can further sharpen the distinction between members of the Sadrist Trend, who should not pose a threat to the Iraqi state, and members of Special Groups, who very much do.

● One conclusion I draw from these signs of progress is that the strategy that began with the Surge is working. This does not mean, however, that U.S. support should be open-ended or that the level and nature of our engagement should not diminish over time. It is in this context that we have begun negotiating a bilateral relationship between Iraq and the United States. In August, Iraq’s five principal leaders requested a long-term relationship with the United States, to include economic, political, diplomatic, and security cooperation. The heart of this relationship will be a legal framework for the presence of American troops similar to that which exists in nearly 80 countries around the world.

● Iran continues to undermine the efforts of the Iraqi government to establish a stable, secure state through the authority and training of criminal militia elements engaged in violence against Iraqi security forces, coalition forces and Iraqi civilians. The extent of Iran’s malign influence was dramatically demonstrated when militia elements armed and trained by Iran clashed with Iraqi government forces in Basrah and Baghdad. When the President announced the Surge, he pledged to seek out and destroy Iranian-supported lethal networks inside Iraq. We know more about these networks and their Quds Force sponsors than ever before – and we will continue to aggressively uproot and destroy them. At the same time, we support constructive relations between Iran and Iraq and are participating in a tripartite process to discuss the security situation in Iraq. Iran has a choice to make.

● Iraq has the potential to develop into a stable, secure multi-ethnic, multi-sectarian democracy under the rule of law. Whether it realizes that potential is ultimately up to the Iraqi people. Our support, however, will continue to be critical. I said in September that I cannot guarantee success in Iraq. That is still the case, although I think we are now closer. I remain convinced that a major departure from our current engagement would bring failure, and we have to be clear with ourselves about what failure would mean.

● Al-Qa’ida is in retreat in Iraq, but it is not yet defeated. Al-Qa’ida's leaders are looking for every opportunity they can to hang on. Osama bin Ladin has called Iraq "the perfect base," and it reminds us that a fundamental aim of Al-Qa’ida is to establish itself in the Arab world. It almost succeeded in Iraq; we cannot allow it a second chance.

● And it is not only Al-Qa’ida that would benefit -- Iran has said publicly it will fill any vacuum in Iraq, and extremist Shi’a militias would reassert themselves. We saw them try in Basrah and Baghdad two weeks ago. And in all of this, the Iraqi people would suffer on a scale far beyond what we have already seen. Spiraling conflict could draw in neighbors with devastating consequences for the region and the world.

● Mr. Chairman, as monumental as the events of the last five years have been in Iraq, Iraqis, Americans and the world ultimately will judge us far more on the basis of what will happen than what has happened. In the end, how we leave and what we leave behind will be more important than how we came. Our current course is hard, but it is working. Progress is real although still fragile. We need to stay with it.

Given the importance of the Sons of Iraq, we are working closely with the Iraqi Government to transition them into the Iraqi Security Forces or other forms of employment, and over 21,000 have already been accepted into the Police or Army or other government jobs. This process has been slow, but it is taking place, and we will continue to monitor it carefully.