US Secretary of State Condoleezza Rice has praised an Iraqi law to reintegrate former Baath party members, saying more reconciliation measures need to follow.
The US is trying to push Iraqi reconciliation measures
Speaking during an unannounced visit to Baghdad, she said reconciliation had moved on "quite remarkably" and that it was a "time of hope" in Iraq.
Ms Rice met top officials in Baghdad, including Prime Minister Nouri Maliki.
She flew to Iraq from Riyadh, where she was accompanying President George W Bush Middle East tour.
Ms Rice briefed the prime minister on the Middle East tour and encouraged him to push through further reconciliation measures, Iraqi officials said.
She also told him that Mr Bush intends to go ahead with plans to withdraw 20,000-30,000 troops gradually by the middle of this year, Mr Maliki's spokesman told Reuters news agency.
'Spirit of cooperation'
Mr Bush has praised Iraq's decision to allow minor Baath party officials back into public office.
The law, approved last week, is one of a series of moves that the US hopes will aid Iraqi reconciliation.
Ms Rice said she had discussed the need to follow up with other measures, including provincial elections and a law to share out Iraqi oil and gas resources.
"There seems to be a spirit of co-operation to move forward," she said at a press conference with Foreign Minister Hoshyar Zebari.
"While it has not always moved as fast as some of us sitting in Washington would like, it has certainly moved."
Saddam Hussein's regime was predominantly Sunni and many Baath party figures were initially purged from government after his fall in 2003, under an edict from ex-US administrator Paul Bremer.
Some were later re-instated, and after the Americans handed over power to an Iraqi government in 2004, they urged the Shia-led administration to ease the measures further.
Much of the Sunni insurgency is thought to be centred on dismissed military men from the Baathist regime.
Last week's legislation has been seen as an attempt by the government to end the sectarian divide between the Shia and Sunni communities.
It excludes former Baath members charged with crimes or still sought for them.
But US officials are acutely aware that political progress is lagging behind improvements in the security situation in Iraq, BBC Middle East analyst Roger Hardy says.
Ms Rice is making her visit at a time of new tension between Arabs and Kurds, as Kurdish leaders push for a referendum on the status of the northern city of Kirkuk - which they want as their capital.
Arab groups oppose such a vote.
Earlier, an Iraqi minister was quoted as saying that his country would need US help with security for another decade.
Defence Minister Abdul Qadir Obeidi told the New York Times that Iraq would not be able to take responsibility for its internal security until 2012, and would not be able to defend its borders from external threats until 2018.
Also Tuesday, Iraqi Oil Minister Hussein Shahristani said a helicopter from the US-led coalition was to blame for a fire that closed down a major refinery near the southern city of Basra.
Mr Shahristani did not explain how the helicopter could have caused the fire, though helicopters often release flares to ward off ground attacks.
US and British military spokesmen denied that any coalition helicopters were involved.
Many workers reportedly suffered burns in the incident.