Saddam Hussein’s fall has allowed Iran to expand its influence in Iraq. It also enabled al-Qaeda to dispatch thousands of young men to Iraq to attack Americans and get trained in terrorism. No doubt many will turn up in other countries later, in search of new U.S. targets. These are just two of the reasons why the U.S. occupation has been such a defeat for Bush.

If security fears were the only factor behind Arab governments' unwillingness to send diplomats to Baghdad, it would not be so bad for Bush. But politics come into play, too. Arab leaders are reluctant to be associated with Iraq's Shi’a-led government, which some see as excessively sectarian and not genuinely sovereign. For many independent players, the current government lacks legitimacy and authority.

The division was underlined last month when the Accordance Front, the main Sunni grouping in the Iraqi parliament, suspended its decision to rejoin the government after withdrawing last year. Ever since Sunni tribal leaders in Anbar province started to resist al-Qaeda in 2006 in a movement called "The Awakening", there has been political turbulence in Sunni-majority areas. The older generation of Sunni politicians in Baghdad has worried more intently about being portrayed as weak in their dealings with the Shi’a-majority government and the Americans, and has pulled back from politics until given serious evidence that Sunnis will have a real share of power.

But all is not well within Prime Minister Nouri al Maliki's Shi’a front either. Moqtada al-Sadr's anti-occupation ministers dropped out of the coalition months ago, and the cleric is threatening to boycott provincial elections in the fall. Al-Sadr is also vocally against the long-term security agreement Washington wants to sign with Baghdad to allow U.S. troops to remain in the country in perpetuity. The wording says "no permanent bases," but since the definition of non-permanent is infinitely flexible, the door will be open for an American presence as long as the U.S. president finds it sustainable with his electorate.

Al-Sadr is demanding a referendum on the pact, while MPs from other parties complain it is being drafted privately without chance for public comment. The referendum call is only the populist tip of an iceberg of unhappiness among Iraqis who feel shut out of a key debate over sovereignty.

Amid the gloom, Bush points to the surge of 30,000 extra U.S. troops as a victory. It has helped – along with several factors – to achieve a drop in attacks on Iraqi civilians, and that must be welcomed. But the levels of killing are still no better than 2005. More significantly, the surge has not resolved Iraq's deep political divisions or given its government legitimacy, either at home or in the Arab world beyond.

The only way to give Iraq a fresh start is for the next U.S. president to clearly announce a short timetable for withdrawing all foreign troops. This will strengthen the Sunni nationalists confronting al-Qaeda and undercut al-Qaeda's claim that their fighters are needed to provide resistance.

There also needs to be a broad-based conference, perhaps hosted by the Arab League and the United Nations, to bring together a variety of Iraqis – political and religious leaders, militia commanders, and civil society representatives – to prepare a coalition government of national re-construction. Elections at this stage will only be divisive. Countries emerging from war cannot afford them.

Only when Iraqis know they are to regain their sovereignty will they look into the abyss and halt the drift to civil war. Political violence between Sunnis and Shi’a is a new phenomenon in the history of modern Iraq. In spite of the bitterness, bereavement, and bloodshed of the last three years, the cancer of sectarianism can be reversed. But for that to happen, Iraqis must become masters in their house again.

Jonathan Steele is a Guardian columnist, foreign correspondent and author who has been to Iraq on eight assignments since the invasion of 2003. His book, DEFEAT: Why America and Britain Lost Iraq, is published by Counterpoint Press. This article was written for the Common Ground News Service (CGNews).