Attacks on US troops have fallen and the sectarian violence that has so scarred post-war Iraq has fallen away. Elements of Al-Qaeda have been routed from several areas by local warlords, and the massacres of the past aimed at provoking renewed internecine strife have become increasingly sporadic.

The US effort has been aided enormously by the ceasefire called in August by militant Shia cleric Moqtada al-Sadr. With the surge over and troop numbers expected to be reduced through 2008, Al-Sadr’s role in national stability will remain critical. His ceasefire is set to expire by February, when all eyes will be watching closely to see if security continues to improve, and with it the chances of economic recovery.

Any spike in violence could scare off investors, and it is unlikely the White House would back another surge if the benefits only last as long as troop numbers remain high. Moreover, the presidential election campaign in the US is bound to be a distraction for all US political leaders throughout 2008.

In the south of Iraq, the UK will continue to remove troops from Basra, having handed the province back to Iraqi control in December. British claims that the Iraqi army and police are equipped to control the region themselves will be severely tested as rival militias move in.

The months ahead could prove a watershed in the country’s redevelopment. A period of continued stability could provide the impetus for large-scale foreign investment and a complete overhaul of the nation’s struggling economy.

Renewed violence could convince the White House that all is essentially lost and precipitate the first stages of a hasty withdrawal, with Tehran and Riyadh waiting in the wings.