US President George W Bush has said the conflict in Iraq will require "difficult choices and additional sacrifices" in the coming year.
Mr Bush called for an increase in the size of the US military, but he said he had not yet decided whether to boost troop numbers in Iraq.
He spoke as new US Defence Secretary Robert Gates began his first visit to Iraq, two days after taking office.
Mr Bush is expected to announce a new strategy for Iraq next month.
In Iraq, the US military handed over security of Najaf province, south of the capital Baghdad, to government forces on Wednesday.
Najaf is the third province to come under Iraqi security control.
The commander of US forces in the Middle East, Gen John Abizaid, meanwhile is to retire early next year after more than three years in the job, a spokesman for US Central Command said.
His departure will clear the way for Mr Gates to choose his own commander in the strategic region, correspondents say.
The president said 2006 had been a "difficult year" for the US military and the Iraqi people, and said the US "will ask more of our Iraqi partners" in 2007.
He admitted that insurgents had thwarted US efforts to stabilise the country, but he said the "safety and security of citizens requires that we do not let up".
Mr Bush said the US was "looking at all options", including increasing troop numbers in Iraq.
But he said in order to do so, "there must be a specific mission that can be accomplished with more troops".
Asked why he was now saying the US was not winning in Iraq just weeks after saying "Absolutely, we're winning", Mr Bush said his earlier comment had referred to his belief that the US would eventually triumph.
Mr Bush voiced confidence in his new defence secretary, saying Mr Gates will be "an important voice in the Iraq strategy review".
Mr Gates is meeting military commanders and Iraqi politicians for advice to help Mr Bush formulate his new policy.
The president's remarks come days after a Pentagon report said attacks on US and Iraqi troops and civilians had reached their highest level since June 2004, when an Iraqi interim government was created.