"It is an important agreement that fully restores Iraq's sovereignty while allowing US forces to continue for a temporary time to assist Iraqi security forces," the US ambassador to Iraq, Ryan Crocker, said in a speech in Baghdad.

His remarks came as the Iraqi cabinet and the high-level Political Council for National Security discussed the controversial draft agreement for a second day Monday.

Lawmaker Jamal al-Buthiq of the Iraqi National List of former premier Iyad Allawi said the agreement would now be presented to the cabinet, which is expected to discuss it on Tuesday.

The draft lays the legal basis for a US troop presence beyond the end of this year when the current UN mandate expires.

But the spiritual leader of Iraq's Shiite majority, Grand Ayatollah Ali Sistani, has insisted that the text be submitted to parliament for approval and several key factions have expressed reservations over or outright hostility to the deal.

The so-called Status of Forces Agreement (SOFA) was due to be concluded by the end of July but negotiations between Baghdad and Washington have become bogged down amid Iraqi determination to defend the country's sovereignty.

"We are continuing our talks with the Iraqis and the Iraqis are talking among themselves. That is to be expected and we hope to move forward on this," US embassy spokeswoman Susan Ziadeh told AFP.

Under the latest draft, US combat forces are to withdraw from Iraqi towns and villages by June 2009 and to pull out completely from Iraq by December 2011.

Washington has made concessions on the question of immunity from prosecution under Iraqi law for its nationals, allowing that soldiers and civilians alike should face trial before the Iraqi courts for serious offences committed outside their bases and when off duty from next year.

The two sides have also agreed that all military operations be carried out with the approval of Baghdad under the supervision of a Joint Military Operation Coordination Committee and that Iraqi authorisation be required for the detention of any Iraqis.

But the US concessions have so far failed to win over the main Shiite bloc that leads the government and on Sunday it issued a statement criticising the latest draft.

"There are positive points and others need more time to be discussed, and others need modification," said the United Iraqi Alliance, which includes the influential Supreme Iraqi Islamic Council as well as Prime Minister Nuri al-Maliki's Dawa faction.

The prime minister has decided to postpone a scheduled visit to Australia next week to continue discussions on the hard-fought deal.

If a deal is not signed by the end of the year, Iraq and its Western allies may have to seek a fresh extension of the UN mandate to allow a continuing foreign military presence.

The president of the autonomous Kurdish region in northern Iraq, Massud Barzani, urged fellow Iraqi politicians to embrace the latest draft of the security pact, warning that the alternative was the status quo under which US troops and contractors enjoyed blanket immunity.

"The alternatives that would be entailed by a rejection would be disturbing," said Barzani, a key US ally.

"It would mean either the continuation of the current situation when an American officer has the power to arrest all ministers, or the US would leave Iraq and give up its commitment to our country," he said.

Barzani stressed that the Kurdish bloc's 53 members of the 275-seat parliament backed the latest text.

"We have always stated our opposition to any agreement that violates the sovereignty of the country but the latest version of the agreement proposed by the Americans took into account the sovereignty of the country," he said.

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