The United States is to ask the United Nations to approve the creation of a multinational force in Iraq in return for ceding some political authority, US officials say.
US troops have come under frequent attack
No exact details have been released of the draft resolution, approved by President George W Bush, but it could be put before the Security Council as early as this week.
Unnamed US officials have said it redefines the role of the UN in the process of transferring power to the Iraqi people - and opens the way for more troop and financial contributions to help Iraq's reconstruction.
The US proposals come amid ongoing attacks on coalition troops - as well as domestic criticism over the costs of the occupation.
They also coincide with a threat from an Iraqi member of the Iraqi Governing Council to set up armed militias because of the lack of security.
US chief administrator Paul Bremer has said he is willing to give more authority to members of the US-endorsed Iraqi cabinet - who were sworn in on Wednesday - once they consolidate their position.
But the White House insists that any restructured multinational force will remain under US command.
The idea of asking the UN to give legitimacy to the US-led occupation of Iraq has been bitterly opposed by Bush administration hawks, says the BBC's Washington correspondent Justin Webb.
But President Bush now appears ready for compromise with the UN if that means the burden of reconstruction can be shared, our correspondent says.
The US Congressional Budget Office is warning that the number of American troops in Iraq will have to be more than halved if threats elsewhere in the world are to be confronted.
The emergence of Iraqi militias indicates growing impatience with the US administration
Washington hopes a UN blessing will persuade big military powers - such as India, Pakistan and Turkey - to contribute troops to Iraq.
Leading opponents of the Iraq war - veto-wielding powers Russia and France - will feel a sense of vindication at the US proposals, says the BBC's David Bamford at the UN.
They say the Bush administration is recognising its dire predicament in Iraq, our UN correspondent says, but they will wait and see to what extent the Americans are prepared to let go of Iraq's political and economic levers.
The threat to try to resolve Iraq's security problems by setting up militias came from Shia leader Muhammad Bahr al-Ulloum.
He has suspended his participation on the Iraq Governing Council, saying it has failed to influence US policy on security.
Mr Bahr al-Ulloum told the BBC Arabic Service that such militias would be in charge of security in holy places in the cities of Najaf and Karbala.
Bremer says he want to transfer power to locals
He was speaking after hundreds of thousands of people attended the funeral in Najaf of the Shia cleric Ayatollah Muhammad Baqr al-Hakim, who died, alongside more than 120 other Iraqis, in a car bomb attack there last week.
The BBC's Magdi Abdelhadi says this statement from such a prominent Shia leader will be seen as a sign of growing restlessness among the Iraqis with the American inability to improve security.
Our correspondent adds that it is particularly significant because it does not come from a sworn enemy of the Americans, but rather from a man who is known to be a liberal cleric.