The most senior US commander in Iraq has hinted that he may recommend a reduction in US troop numbers to avoid placing a strain on the army.
Gen David Petraeus told US television there were limits to what the military could do, and agreed that next March was "about right" for reductions.
The general is due to present his much anticipated assessment of US military strategy in Iraq to Congress next week.
Meanwhile President George W Bush has strongly defended his policy in Iraq.
Earlier, a non-partisan US Congressional report had said the Iraqi government was failing to reach most of the targets set for it by Congress.
Speaking in Sydney after a meeting with Australian Prime Minister John Howard, Mr Bush said: "The security situation is changing, so that reconciliation can take place."
He added that the fact that Iraqi legislature had passed 60 pieces of legislation "was illustrative of a government that's beginning to work".
Mr Howard, meanwhile, said he was not planning to change Australia's forces in Iraq.
"Our commitment to Iraq remains," he said.
"This is not the time for any proposals of a scaling down of Australian forces."
'Initiative against al-Qaeda'
Gen Petraeus and Ryan Crocker, the US ambassador to Iraq, are due to deliver a full progress report on the US military surge to Congress next week.
President Bush says his security surge is delivering results
Gen Petraeus told ABC that the surge, which had provided "an initiative ... against al-Qaeda", would run its course but there were limits to what the military could do.
"My recommendations have to be informed by - not driven by - ... the strain we have put on our military services," he said.
BBC world affairs correspondent Nick Childs says it will be a crunch week for US strategy in Iraq, with the debate building on whether US troops should stay or leave.
The administration's clear hope is that the promise at least of some reductions - back to the pre-surge total of 130,000 troops, compared to today's 160,000 - will be enough to ease pressure from Democrats in Congress for deeper cuts, he says.
Keeping up troop numbers beyond next April would mean sending replacements which, our correspondent says, is currently unacceptable both logistically and politically.
Gen Petraeus' statements came as a Congressional watchdog reported that the Iraqi government was "dysfunctional" and had failed to meet 11 of 18 key benchmarks set by the US.
Political progress in Iraq has been unsatisfactory and violence "remains high", a report by the Government Accountability Office (GAO) found.
Its report, issued on Tuesday, said Iraq had failed to live up to key targets on reducing sectarian violence and passing laws on oil revenue sharing.
It says militias are still active and the performance of the US-backed Iraqi government has been poor.
The GAO findings come a day after President Bush visited Iraq's Anbar province and said his security surge - the insertion of an extra 30,000 troops into Iraq - was delivering results.