Iraq faces the distinct possibility of collapse and fragmentation, UK foreign policy think tank Chatham House says.
Rival factions are struggling for local supremacy in Iraq
Its report says the Iraqi government is now largely powerless and irrelevant in many parts of the country.
It warns there is not one war but many local civil wars, and urges a major change in US and British strategy, such as consulting Iraq's neighbours more.
The report comes as Iran said Iranian and US diplomats would hold talks on 28 May on the security situation in Iraq.
Iranian Foreign Minister Manouchehr Mottaki said the talks - the third such meeting - would be restricted to the subject of Iraq.
"Negotiation is limited to Iraq, in Iraq, and will start in the presence of Iraqi officials," he told reporters during a visit to Pakistan.
The situation in Iraq will form part of discussions between UK Prime Minister Tony Blair and US President George W Bush in Washington on Thursday.
It is Mr Blair's last official visit to the White House before he steps down as prime minister on 27 June.
The UK Foreign Office, responding to the Chatham House report, stated that security conditions, although "grim" in places, varied across Iraq.
"Most insurgent attacks remain concentrated in just four of Iraq's 18 provinces, containing less than 42% of the population," a Foreign Office spokesman told the Press Association news agency.
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Formerly known as the Royal Institute of International Affairs
Takes its name from building in which it is housed
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Famous for Chatham House Rule, on free speech and confidentiality at meetings
"Iraq has come a long way in a short time," he added, saying the international community "must stand alongside the Iraqi government".
Maj Gen William Caldwell, spokesman for the multinational force in Iraq, told the BBC the US troops surge in Baghdad was showing progress.
"We are seeing positive indicators that within Baghdad levels of violence are coming down," he said.
"That's what we want it to do, so that it will set the conditions to allow for the economic and political process to take place."
The Chatham House report, written by Gareth Stansfield, a Middle East expert, is unremittingly bleak, says BBC diplomatic correspondent James Robbins.
Mr Stansfield argues that the break-up of Iraq is becoming increasingly likely.
In large parts of the country, the Iraqi government is powerless, he says, as rival factions struggle for local supremacy.
The briefing paper, entitled Accepting Realities in Iraq, says: "There is not 'a' civil war in Iraq, but many civil wars and insurgencies involving a number of communities and organisations struggling for power."
Mr Stansfield says that although al-Qaeda is challenged in some areas by local leaders who do not welcome such intervention, there is a clear momentum behind its activity.
Iraq's neighbours also have a greater capacity to affect the situation on the ground than either the UK or the US, the report adds.
On Thursday, Iranian Foreign Minister Manouchehr Mottaki said that US-Iranian discussions at ambassador level would take place in Iraq on 28 May.
American and Iranian officials have held talks at ambassador level in the past. There were discussions in Baghdad in March and brief exchanges at a summit in Egypt earlier this month.
Given the climate of suspicion and hostility which has existed between Iran and the US, it is doubtful that the talks stand any chance of yielding quick or substantial results, our correspondent says.
Washington accuses Iran of arming Shia militants in Iraq.
Tehran says American and other coalition forces should be withdrawn from Iraq.