The White House says it expects conditions in Iraq will permit a reduction in the number of American forces in the country next year.
There are 160,000 US troops in Iraq
A spokesman told journalists progress was being made with the training of Iraqi security forces and that would allow the US to reduce its presence.
President George W Bush is expected to repeat that big advances are being made in Iraq in a speech later on Wednesday.
Correspondents say he wants to give Americans hope that an end is in sight.
The BBC's Justin Webb in Washington says the rhetoric from the White House has changed.
While vows to "stay the course" have not been jettisoned entirely, the president realises that to halt the decline in his popularity and help the Republican Party keep control of Congress after mid-term elections next year, he needs to persuade Americans that he has a plan to get out of Iraq, our correspondent says.
There are currently 160,000 US troops in the country.
White House spokesman Scott McClellan said there was an expectation that in 2006 conditions in Iraq would permit the US to lower the number of troops there.
Speaking in Texas, President Bush said: "I will make decisions based upon... the recommendations by the commanders on the ground.
"If they tell me we need more troops, we'll provide more troops. If they tell me we've got sufficient level of troops, that will be the level of troops.
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"If they tell me that the Iraqis are ready to take more and more responsibility and that we'll be able to bring some Americans home, I will do that."
The US soldier in charge of training Iraqi forces, Lt Gen Martin Dempsey, said 212,000 police and soldiers had been trained and equipped so far, but there was still some way to go.
"They lack some capabilities that we still have to provide them and will continue to have to provide them for a period of time," he said.
'Darned good job'
US Secretary of Defence Donald Rumsfeld said the Iraqi security forces were already taking over significant security responsibilities.
"We've been passing over bases... we've been turning over responsibilities, but by golly the people who've been denigrating the Iraqi security forces are flat wrong," he said.
"They're doing a darned good job and they're doing an increasingly better job every day, every week, every month."
He said this did not amount to "quitting" Iraq.
"The answer is clear, quitting is not an exit strategy. It would be a formula for putting the American people at still greater risk and be an invitation for more terrorist violence," he said at a Pentagon news conference.
In the last few weeks the Bush administration has found itself under public pressure from Congress to start demonstrating signs of progress in Iraq.
Pentagon officials say a big turnout in Iraqi elections in next month will be an encouraging sign that confidence is growing in Iraq's future.