As war winds down, will Iraq's progress hold steady?

How volatile is the rift between Arabs and Kurds?

It is simmering and could erupt if Baghdad and the semiautonomous Kurdistan Regional Government (KRG) don't come to an agreement over Kirkuk, the oil-rich city that is under central government authority but claimed by the Kurds as their historic capital. Added to the mix is a large Iraqi Turkmen minority backed by Turkey. A referendum to decide who should control the city has been postponed twice, and the UN has so far been unable to find an acceptable formula for a political settlement that would pave the way for a vote.

How is the Iraqi economy doing?

Over the next year, troubles in the Iraqi economy – rampant corruption, a still dismal infrastructure, and high unemployment – will become more pressing issues. Ambassador Crocker, in an interview, cites failure to establish legal structures and the inability to control corruption at the top of his list of concerns for 2009.

"The toughest nut to crack is the rule of law – that's a multigenerational task," says Alex Laskaris, head of the State Department's Provincial Reconstruction Team near Mosul, where the US has been helping to fly in Iraqi judges from outside the volatile province.

With low oil prices, the country is facing at least a 23 percent deficit in its 2009 budget, which had been based on projections of $62 per barrel for oil. Iraq's finance minister has warned of cutbacks in government spending, which could threaten reconstruction projects and job creation.

"The biggest feeder of the insurgency here has been unemployment," notes Maj. Adam Boyd, intelligence officer for the 3rd Squadron, 3rd Armored Cavalry Regiment in Mosul.

While the drop in violence has prompted tens of thousands of families to return, professionals are not expected to come back in large numbers until security and essential services improve further.

The International Organization for Migration said in December that more than 230,000 displaced Iraqis had returned home by November, almost all of them coming from other parts of the country and most returning to Baghdad.

How does Iran factor in?

Iran's influence is pervasive. And among Iraq's neighbors, it has perhaps the most destabilizing potential. But US and Iraqi officials say Tehran since last summer has lowered its level of military and political interference in Iraq. Although Tehran has good relations with Maliki and the country's leading Shiite religious figures, most Iraqis view it with suspicion. But Iran's historical trade relationship with Iraq makes it a key economic partner.

"I think there are very clearly limits to Iran's ability to influence events here," says Crocker. "But they could still do a lot of damage if they decide to ratchet that damage up."

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