While civilian deaths are at a level nearly 80 percent lower than during the same period last year, the Iraq war remains "a communal struggle for power and resources."

The latest quarterly Pentagon report mandated by Congress also said that "malign Iranian influence continues to pose the most significant threat to long-term stability in Iraq."

"Despite continued Iranian promises to the contrary, it appears clear that Iran continues to fund, train, arm and direct [‘Special Groups’] intent on destabilizing the situation in Iraq," the report, issued late Tuesday, read.

The report covers the period between June and August 2008.

While political progress has continued, that in itself could pose security problems. As provincial and national election laws are passed, and the votes near, the process could lead to violence as various groups vie for power.

While sectarian killings increased slightly in July and August, they were down by around 95 percent from similar periods last year, according to the report.

Overall, violence has been reduced to levels not seen since early 2004.

"Political, security, economic, and diplomatic trends in Iraq this past quarter continued to be positive," the report reads. "However, they remain fragile, reversible, and uneven."

The report cites the same challenges enumerated by Gen. Ray Odierno when he took command of the war effort in mid-September: integrating "Sons of Iraq" groups into security forces and other jobs; the fate of Kirkuk; refugee returns; and a lack of government services.

"The oil and electrical sectors have improved, but [Iraqi government] delivery of a broader set of essential services still lacks," the report reads.

While electricity generation is up by 12 percent over the previous year, "the population’s level of satisfaction with essential services remains low as the ministries struggle with aging infrastructure and increased demand."

Further, the report said, "corruption continues to plague Iraqi governmental institutions."

The report also warned that some members of Muqtada al-Sadr’s Mahdi Army have ignored his call to turn the militia into a "services" organization. Instead, the report reads, "others are transitioning into the new, more lethal [‘Special Groups’], which continue to receive funding, training, and lethal aid from Iran and is judged to be less under Sadr’s control."

"Whether recent security gains are long-term will depend, in part, on how these issues continue to develop."

The full report can be found at: www.defenselink.mil/news/d20080930iraq.pdf.