Defence Secretary John Reid is in Iraq to tell local politicians that their highest priority should be to form a government of national unity.
This would show insurgents they could not divide Iraqis, he told the BBC ahead of a meeting in Baghdad.
Three years after the US-led military action, Mr Reid rejected claims that the country was wracked by violence and gripped by civil war.
He said there had been progress and most of the country was under control.
He told BBC Radio 4's Today programme the picture was mixed and admitted progress had been held up by the terrorists.
But he said he would be telling Iraqi leaders: "A government of national unity would be the biggest signal in Iraq that terrorists will not be allowed to do what they are trying to do which is divide Iraqi from Iraqi."
A speedy government would not only fill the power vacuum the terrorists sought to occupy, but would bring different ethnic groups together, he said.
He admitted insurgents had seen some success in "pushing people into their sectarian enclaves".
But he added: "That is not civil war. There is not civil war now, nor is it inevitable, nor is it imminent."
He also denied reports that Iraq was "ungovernable", saying that most of the violence was concentrated in and around Baghdad.
Only 2% of violent incidents were taking place in British controlled areas, he pointed out.
He also urged people marching in London and other capital cities on Saturday against the presence of multi-national forces in Iraq to consider supporting progress in the country.
They had a clear choice between backing the democratic developments desired by ordinary Iraqis or supporting the terrorists dividing the country.
Mr Reid has praised the progress made by Iraqi security forces, but says they were not ready to control whole provinces.
Meet the troops
The government has announced UK troop numbers are to fall by 800 to 7,000.
The reduction comes as Iraqi security forces begin to take on more responsibilities for themselves.
Mr Reid has already met Iraqi defence minister Saadoun al-Dulaimi and top US commander General George Casey during his visit.
He will also continue to meet British troops serving in the country.