The United States administrator of Iraq, Paul Bremer, has said general elections could be held within a year to replace the US-appointed Interim Governing Council.
There is substantial hosility to the US presence in Iraq
The 25-member Council (IGC) recently opted for a nine-member rotating presidency made up of representatives of the country's ethnic groups.
Mr Bremer, speaking at a ceremony to reopen Iraq's foreign ministry in Baghdad, said the US-led force occupying Iraq would leave as soon as a new, democratic government was established.
But hostility towards US forces has continued since the fall of Saddam Hussein, and on Wednesday two US soldiers were killed and five injured in separate attacks in and around the capital, Baghdad.
The US military said the first attack, which killed one soldier and wounded two, saw a unit from the 4th Infantry Division come under small arms fire at a tactical operations centre near Baqubah.
The Americans said that in the second incident, a soldier from the 1st Armoured Division was killed and three were wounded when their armoured personnel carrier hit a landmine on a road in Baghdad.
However, there are unconfirmed eyewitness reports from Baghdad that the vehicle was hit by a rocket-propelled grenade or rocket fired at close range.
The area has seen repeated attacks against American troops including a grenade attack on Saturday which killed three soldiers guarding a children's hospital.
At least 49 US soldiers have died in combat since US President George Bush announced the end of major hostilities on 1 May.
The foreign ministry was looted and gutted by fire after US-led forces toppled Saddam Hussein.
Mr Bremer told Iraqi officials gathered at the opening ceremony to expect an Iraqi government to be in place next year.
"Your ministry is back at work... and gradually it will move to diplomacy," he said.
"I know your work will expand as the steps we are putting in place to establish an Iraqi government progress.
"It is not unrealistic to think we could possibly have general elections by mid-2004 and that is when our work here will be done."
He said that would mark his final retirement as a diplomat.
On Wednesday, World Bank President James
Wolfensohn said it was unclear whether the ICG had the legitimacy to receive international
"Clearly a constitution and an elected government would constitute a recognized government, but what do we do in the meantime?" he said during a one-day trip to
"It's a subject that needs interpretation."
The World Bank has the job of assessing how much the rebuilding of Iraq is likely to cost, ahead of a meeting of donors scheduled for October.