Chancellor Gordon Brown has made his first visit to Iraq and has promised an extra £100m ($188m) over three years to help rebuild the country's economy.
Mr Brown praised UK troops' 'tremendous morale'
After meeting UK troops near Basra, he praised their "tremendous morale" and the "work they have been doing in often very difficult circumstances".
He said he hoped to see troop reductions "in the next few months".
Mr Brown also met senior military officers and discussed Iraq's economy with senior Iraqi ministers.
Earlier, Tony Blair publicly agreed that violence in Iraq since the US-led 2003 invasion had been a "disaster".
'Security and prosperity'
Mr Brown, whose visit had been kept secret, met Iraqi deputy prime minister Barham Saleh and other senior ministers during his day-long trip.
He said: "We are committed to supporting the Iraqis in building a democratic nation which brings security and prosperity to its people and plays a full part in the region and the world economy."
He urged the Iraqi authorities to press ahead with reconstruction work, which he said would offer ordinary people the prospect of jobs and prosperity and counter the appeal of extremist violence.
"We have got to help the Iraqi economy get back on its feet so that we can see Iraq running its own affairs and we can see a reduction in our troops in the next few months," he said.
"It is very important that there are infrastructure projects that deliver jobs.
"There are far too many people here who are unemployed and without the means of building a future.
"We are prepared to do what we can, but we want to work with the Iraqi government so that the economy is reconstructed in such a way that people can look forward to prosperity and therefore the moderates are given strength against extremists who are preaching violence."
The chancellor - the favourite to succeed Mr Blair as prime minister - is seen as keen to increase his profile outside his Treasury brief.
Mr Brown was accompanied on his trip by the Chief of Defence Staff Air Chief Marshal Sir Jock Stirrup and also held talks with senior commanders of UK forces in Iraq, as well as regular troops.
Mr Brown told members of the Princess of Wales Royal Regiment: "I know you are called the Tigers, and you are proud and courageous tigers and everyone in Britain is very proud of you.
"I hope you will have a restful Christmas."
The UK has 7,200 troops in the south of Iraq, mostly stationed in and around Basra, but the city remains dangerous with factions battling for control.
Assistant Chief Constable Dick Barton - advising the Iraqi police force - said large numbers of officers would have to be replaced to reduce militia influence.
He told BBC Radio 4's Today programme the "culture difference" was making reform difficult.
On Friday, Mr Blair was questioned by Sir David Frost in an interview on the al-Jazeera English-language Arabic TV channel about the situation in Iraq.
When asked whether the violence had "so far been pretty much of a disaster", the prime minister replied: "It has, but you see what I say to people is why is it difficult in Iraq?
"It's not difficult because of some accident in planning."
Those involved in the insurgency had a "deliberate strategy" which had to be overcome, Mr Blair added.
The Liberal Democrats said the prime minister had now accepted the enormity of his decision to go to war in Iraq.
But Downing Street insisted his views had been misrepresented.