The US administrator in Iraq says many former public sector workers who lost their jobs after the fall of Saddam Hussein's regime may be reinstated.
Schoolteachers are among those to be reinstated
Paul Bremer said members of the former ruling Baath party who had a clean record could return to their old jobs in the military or education.
Correspondents say the move, which was announced in a televised speech, represents a major shift in US policy.
But it has been criticised by some members of the Iraqi Governing Council.
"This is like allowing Nazis into the German government immediately after World War Two," said Governing Council member Ahmed Chalabi.
Adnan al-Assadi, of the Dawa party, said: "It will help security deteriorate further, disappoint the Iraqis who have trusted the coalition to manage the political process and lead to civil war."
The move could allow some former senior Baath party officials into the interim government being formed by the UN.
"Many Iraqis have complained to me that the
de-Baathification policy has been applied unevenly and
unjustly," Mr Bremer said in an address on US-run al-Iraqiya
"I have looked into these complaints and they are legitimate.
"The de-Baathification was and is sound," he added.
"It is the right policy for Iraq, but it has been poorly
More than 400,000 civil servants lost their jobs when the armed forces, security services, defence and information ministries were dissolved after the fall of Saddam Hussein.
An appeals system was set up to allow them to reclaim their jobs, but thousands of Iraqis complained it was too slow.
The present US-appointed Iraqi Governing Council had also received widespread criticism for going too far to exclude former Baathists.
Only last week, UN envoy Lakhdar Brahimi said: "It is difficult to understand that thousands upon thousands... of professionals sorely needed in the country have been dismissed."
'Struggling to cope
The BBC's Dominic Hughes in Baghdad says the reasons for Mr Bremer's announcement are two-fold.
The US-led coalition in Iraq is struggling to fill jobs such as doctors and teachers after the purge last year.
Mr Bremer may also hope that by encouraging the former Baathists to get more involved in government, it may take the wind out of the Sunni insurgency in areas such as Falluja, says our correspondent.