Democratic congressional leaders have abandoned plans to tie support for a $100bn war funding bill to a timetable for troop withdrawal from Iraq.
Democrats have been pushing for a timetable to withdraw US troops
The decision followed weeks of wrangling over the bill which the US president threatened to veto.
Denying the move was a White House victory, Democrats said the bill would include extra funds for domestic use.
It came as declassified documents showed Osama Bin Laden asked the head of al-Qaeda in Iraq to target the US.
Homeland security advisor Frances Townsend said that Abu Musab al-Zarqawi, killed in a US air strike in June 2006, had been asked to set up a cell in the US.
Ms Townsend said the intelligence showed that Iraq remained a "terrorist sanctuary" from which al-Qaeda could plot attacks on the US.
Both political parties said they hoped the Iraq funding bill would be ready by Friday.
US President George W Bush vetoed the first war funds bill because it included a deadline for troop withdrawal.
"The president has made it very clear he's not going to sign timelines [for withdrawing troops]. We can't pass timelines over his veto," House Majority Leader Steny Hoyer said.
But Republicans said the decision represented a win after weeks of struggle on the deadline issue.
"Democrats have finally conceded defeat in their effort to include mandatory surrender dates in a funding bill for the troops, so forward progress has been made for the first time in four months," said John Boehner, the House Republican leader.
However, the compromise agreement is expected for the first time to make non-military reconstruction aid conditional on Baghdad tackling violence in the country.
Democratic Senate Majority leader Harry Reid said his party would seek to pursue the timetabling issue in a separate bill later this summer.