From May 2003 through June 2004, the CPA, led by the United States and the United Kingdom, was the UN-recognized coalition authority responsible for the temporary governance of Iraq and for overseeing, directing, and coordinating the reconstruction effort. In May 2003, the CPA dissolved the military organizations of the former regime and began the process of creating or reestablishing new Iraqi security forces, including the police and a new Iraqi army. Over time, multinational force commanders assumed responsibility for recruiting and training some Iraqi defense and police forces in their areas of responsibility. In May 2004, the President issued a National Security Presidential Directive, which stated that, after the transition of power to the Iraqi government, the Department of State (State), through its ambassador to Iraq, would be responsible for all U.S. activities in Iraq except for security and military operations. U.S. activities relating to security and military operations would be the responsibility of the Department of Defense (DOD). The Presidential Directive required the U.S. Central Command (CENTCOM) to direct all U.S. government efforts to organize, equip, and train Iraqi security forces. The Multi-National Security Transition Command-Iraq, which operates under Multi-National Force-Iraq (MNF-I), now leads coalition efforts to train, equip, and organize Iraqi security forces. Other U.S. government agencies also play significant roles in the reconstruction effort. The U.S. Agency for International Development (USAID) is responsible for projects to restore Iraq’s infrastructure, support healthcare and education initiatives, expand economic opportunities for Iraqis, and foster improved governance. The U.S. Army Corps of Engineers provides engineering and technical services to USAID, State, and military forces in Iraq. In December 2005, the responsibilities of the Project Contracting Office (PCO), a temporary organization responsible for program, project, asset, and financial management of construction and nonconstruction activities, were merged with those of the U.S. Army Corps of Engineers Gulf Region Division. On June 28, 2004, the CPA transferred power to an interim sovereign Iraqi government, the CPA was officially dissolved, and Iraq’s transitional period began. Under Iraq’s transitional law, the transitional period included the completion of a draft constitution in October 2005 and two subsequent elections—a referendum on the constitution and an election for a permanent government. The Iraqi people approved the constitution on October 15, 2005, and voted for representatives to the Iraq Council of Representatives on December 15, 2005. As of February 3, 2006, the Independent Electoral Commission of Iraq had not certified the election results for representatives. Once certified, the representatives are to form a permanent government. According to U.S. officials and Iraqi constitutional experts, the new Iraqi government is likely to confront the same issues it confronted prior to the referendum—the power of the central government, control of Iraq’s natural resources, and the application of Islamic law. According to U.S. officials, once the Iraqi legislature commences work, it will form a committee that has 4 months to recommend amendments to the constitution. To take effect, these proposed amendments must be approved by the Iraqi legislature and then Iraqi citizens must vote on them in a referendum within 2 months. The United States faces three key challenges in stabilizing and rebuilding Iraq. First, the unstable security environment and the continuing strength of the insurgency have made it difficult for the United States to transfer security responsibilities to Iraqi forces and to engage in rebuilding efforts. Second, inadequate performance data and measures make it difficult to determine the overall progress and impact of U.S. reconstruction efforts. Third, the U.S. reconstruction program has encountered difficulties with Iraq’s inability to sustain new and rehabilitated infrastructure projects and to address maintenance needs in the water, sanitation, and electricity sectors. U.S. agencies are working to develop better performance data and plans for sustaining rehabilitated infrastructure. Over the past 2½ years, significant increases in attacks against the coalition and coalition partners have made it difficult to transfer security responsibilities to Iraqi forces and to engage in rebuilding efforts in Iraq. The insurgency in Iraq intensified through October 2005 and has remained strong since then. Poor security conditions have delayed the transfer of security responsibilities to Iraqi forces and the drawdown of U.S. forces in Iraq. The unstable security environment has also affected the cost and schedule of rebuilding efforts and has led, in part, to project delays and increased costs for security services. Recently, the administration has taken actions to integrate military and civilian rebuilding and stabilization efforts. The insurgency intensified through October 2005 and has remained strong since then. As we reported in March 2005, the insurgency in Iraq— particularly the Sunni insurgency—grew in complexity, intensity, and lethality from June 2003 through early 2005. According to a February 2006 testimony by the Director of National Intelligence, insurgents are using increasingly lethal improvised explosive devices and continue to adapt to coalition countermeasures. As shown in figure 1, enemy-initiated attacks against the coalition, its Iraqi partners, and infrastructure increased in number over time. The highest peak occurred during October 2005, around the time of Ramadan and the October referendum on Iraq’s constitution. This followed earlier peaks in August and November 2004 and January 2005. According to a senior U.S. military officer, attack levels ebb and flow as the various insurgent groups—almost all of which are an intrinsic part of Iraq’s population— rearm and attack again. As the administration has reported, insurgents share the goal of expelling the coalition from Iraq and destabilizing the Iraqi government to pursue their individual and, at times, conflicting goals. Iraqi Sunnis make up the largest portion of the insurgency and present the most significant threat to stability in Iraq. In February 2006, the Director of National Intelligence reported that the Iraqi Sunnis’ disaffection is likely to remain high in 2006, even if a broad, inclusive national government emerges. These insurgents continue to demonstrate the ability to recruit, supply, and attack coalition and Iraqi security forces. Their leaders continue to exploit Islamic themes, nationalism, and personal grievances to fuel opposition to the government and recruit more fighters. According to the Director, the most extreme Sunni jihadists, such as al-Qaeda in Iraq, will remain unreconciled and continue to attack Iraqi and coalition forces. The remainder of the insurgency consists of radical Shia groups, some of whom are supported by Iran, violent extremists, criminals, and, to a lesser degree, foreign fighters. According to the Director of National Intelligence, Iran provides guidance and training to select Iraqi Shia political groups and weapons and training to Shia militant groups to enable anticoalition attacks. Iran also has contributed to the increasing lethality of anticoalition attacks by enabling Shia militants to build improvised explosive devices with explosively formed projectiles, similar to those developed by Iran and Lebanese Hizballah. The continuing strength of the insurgency has made it difficult for the multinational force to develop effective and loyal Iraqi security forces, transfer security responsibilities to them, and progressively draw down U.S. forces in Iraq. The Secretary of Defense and MNF-I recently reported progress in developing Iraqi security forces, saying that these forces continue to grow in number, take on more responsibilities, and increase their lead in counterinsurgency operations in some parts of Iraq. For example, in December 2005 and January 2006, MNF-I reported that Iraqi army battalions and brigades had assumed control of battle space in parts of Ninewa, Qadisiyah, Babil, and Wasit provinces. According to the Director for National Intelligence, Iraqi security forces are taking on more- demanding missions, making incremental progress toward operational independence, and becoming more capable of providing security. In the meantime, coalition forces continue to support and assist the majority of Iraqi security forces as they develop the capability to operate independently. However, recent reports have recognized limitations in the effectiveness of Iraqi security forces. For example, DOD’s October 2005 report notes that Iraqi forces will not be able to operate independently for some time because they need logistical capabilities, ministry capacity, and command and control and intelligence structures. In the November 2005 National Strategy for Victory in Iraq, the administration cited a number of challenges to developing effective Iraqi security forces, including the need to guard against infiltration by elements whose first loyalties are to institutions other than the Iraqi government and to address the militias and armed groups that are outside the formal security sector and government control. Moreover, according to the Director of National Intelligence’s February 2006 report, Iraqi security forces are experiencing difficulty in managing ethnic and sectarian divisions among their units and personnel. GAO’s classified report on Iraq’s security situation provided further information and analysis on the challenges to developing Iraqi security forces and the conditions for the phased drawdown of U.S. and other coalition forces. The security situation in Iraq has affected the cost and schedule of reconstruction efforts. Security conditions have, in part, led to project delays and increased costs for security services. Although it is difficult to quantify the costs and delays resulting from poor security conditions, both agency and contractor officials acknowledged that security costs have diverted a considerable amount of reconstruction resources and have led to canceling or reducing the scope of some reconstruction projects. For example, in March 2005, USAID cancelled two task orders related to power generation that totaled nearly $15 million to help pay for the increased security costs incurred at another power generation project in southern Baghdad. In another example, work was suspended at a sewer repair project in central Iraq for 4 months in 2004 due to security concerns. In January 2006, State reported that direct and indirect security costs represent 16 to 22 percent of the overall cost of major infrastructure reconstruction projects. In addition, the security environment in Iraq has led to severe restrictions on the movement of civilian staff around the country and reductions of a U.S. presence at reconstruction sites, according to U.S. agency officials and contractors.