Story Highlights• Report calls for a "diplomatic offensive" and end of U.S. troop combat role by '08
• U.S. troop mission should evolve to role of supporting Iraqi army
• Military units "under significant strain" and equipment wearing out quickly
• Bush, Congress must cooperate or "policy is doomed to failure"
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WASHINGTON (CNN) -- The Iraq Study Group called the situation in Iraq "grave and deteriorating" Wednesday and recommended a radically different approach from President Bush's current policy, including the withdrawal of most U.S. combat troops by early 2008.
In delivering its report to Bush and Congress, the bipartisan panel listed 79 recommendations for change in Iraq strategy, including direct talks with Iran and Syria as part of a "diplomatic offensive."
All 10 members of the panel, chaired by former Secretary of State James Baker, a Republican, and former Democratic Rep. Lee Hamilton of Indiana, met with Bush at the White House to present the bound report. (View the complete report -- PDF)
The Bush administration has repeatedly rejected calls to seek help from Iran and Syria.
But the report states that "Iraq's neighbors and key states in and outside the region should form a support group" to help Iraq achieve long-term security and political reconciliation -- "neither of which it can sustain on its own."
"If we don't talk to them, we don't see much progress being made," Hamilton said. "You can't look at this part of the world and pick and choose which countries you're going to deal with."
The panel, which was chartered by Congress, warns of dire consequences, both at home and abroad, if the U.S. fails to take action. (Watch Democrats claim vindication on Iraq )
"If the situation continues to deteriorate, the consequences could be severe. A slide toward chaos could trigger the collapse of Iraq's government and a humanitarian catastrophe," the report says.
"Neighboring countries could intervene. Sunni-Shia clashes could spread. Al Qaeda could win a propaganda victory and expand its base of operations. The global standing of the United States could be diminished. Americans could become more polarized."
On the military front, the report suggests, "By the first quarter of 2008, subject to unexpected developments in the security situation on the ground, all combat brigades not necessary for force protection could be out of Iraq."
It adds: "At that time, U.S. combat forces in Iraq could be deployed only in units embedded with Iraqi forces, in rapid-reaction and special operations teams and in training, equipping, advising, force protection and search and rescue."
The co-chairs said they took "a pragmatic approach" to determining the best course for Iraq and determined the solution was not a military, political or economic one, but rather a combination of the three. (Read full story)
"We no longer can afford to stay the course," Baker said. "If we do what we recommend in this report, it will certainly improve our chances for success."
Hamilton echoed his colleague's sentiments, saying the Iraqi people are "suffering great hardship" and their lives must be improved.
"The current approach is not working and the ability of the United States to influence events is diminishing," Hamilton said. "Our ship of state has hit rough waters. It must now chart a new way forward."
Among the group's recommendations were calls for a change in the primary mission of U.S. forces in Iraq that will allow the United States to move forces out responsibly.
It also calls for prompt action by the Iraqi government to achieve milestones, particularly reconciliation. (Watch co-chair explain why the "current approach is not working" )
Attacks against U.S. and coalition troops are "persistent and growing," the report states, and about 3,000 Iraqi civilians are killed every month.
"Violence is increasing in scope, complexity and lethality," the report says, blaming the Sunni Arab insurgency, Shiite militias and death squads, al Qaeda and other jihadist groups as the sources.
"Sectarian violence -- particularly in and around Baghdad -- has become the principal challenge to stability."
The U.S. military's ability to combat the violence is dwindling because of shortages in manpower and other resources, the report says.
It says almost every U.S. Army and Marine unit, as well as several National Guard and reserve units, have been to Iraq at least once, if not two or three times.
"Regular rotations, in and out of Iraq or within the country, complicate brigade and battalion efforts to get to know the local scene, earn the trust of the population and build a sense of cooperation," according to the report.
"The American military has little reserve force to call on if it needs ground forces to respond to other crises around the world."
Many units are "under significant strain" and equipment is wearing out quickly because of the harsh conditions in Iraq.
Iraqi security forces, too, are ill-equipped to fight the insurgency and are making only "fitful progress toward becoming a reliable and disciplined fighting force," according to the report.
Although U.S. troops have received adequate funding, "the entire appropriation for Iraqi defense forces [for fiscal year] 2006 [$3 billion] is less than the United States spends in Iraq every two weeks."
The state of the Iraqi police force is even worse, states the report.
"It has neither the training nor legal authority to conduct criminal investigations, nor the firepower to take on organized crime, insurgents, or militias," it says.
"Iraqi police cannot control crime, and they routinely engage in sectarian violence, including the unnecessary detention, torture, and targeted execution of Sunni Arab civilians."
In addition to its inability to provide security, the Iraqi government also fails to provide basic services like electricity, drinking water, sewage, health care and education, the report says.
"The government sometimes provides services on a sectarian basis. For example, in one Sunni neighborhood of Shia-governed Baghdad, there is less than two hours of electricity each day and trash piles are waist-high,' according to the report.
The report says Prime Minister Nuri al-Maliki's government needs to show "substantial progress ... on national reconciliation, security and governance" or face a reduction in "political, military, or economic support" from Washington.
The report also prods the administration to launch a new diplomatic initiative to solve the Israel-Palestinian conflict.
It contends the United States "cannot achieve its goals in the Mideast" unless it embarks on a "renewed and sustained commitment to a comprehensive peace plan on all fronts.
While not recommending a timetable for withdrawal, the report says: "The United States must not make an open-ended commitment to keep large numbers of American troops deployed in Iraq."
"We will take every proposal seriously, and we will act in a timely fashion," Bush said after receiving the report. (Watch Bush's reaction after receiving Iraq report )
Bush urged Congress to work with the administration to find "common ground" on Iraq policy.
Democratic leaders praised the report. Incoming Senate Majority Leader Harry Reid called it a "tremendous step forward" and Sen. Joe Biden, who will head the foreign relations committee in January, said it was "a significant contribution."
Sen. Carl Levin, who will take over the chairmanship of the Armed Services Committee in January, said, "The report represents another blow at the policy of stay the course that this administration has followed. Hopefully, this will be the end of that stay-the-course policy."
Asked if the report represented a repudiation of Bush's Iraq policy, White House press secretary Tony Snow said, "No, it's something we have acknowledged. It's an acknowledgement of reality."
"We look at this as a very positive document. One of the things they said is, 'We're not coming here, Mr. President, to criticize you,' " Snow said.
"What they said is that this is an opportunity -- they see an opportunity to come with a new way forward. Well, yes. And we like that. We like the formulation."
CNN's Ed Henry contributed to this report.
Source: Iraq Study Group report