The number of Al Qaeda extremists in Iraq has plummeted and their ability to maintain a high-level of attacks has been eroded, U.S. intelligence suggests.

Battered by the surge of U.S. and allied troops into Iraq, and the slowly increasing effectiveness of Iraqi security forces, Al Qaeda's franchise in the war-worn country is finding fewer foreign fighters to tap for suicide bombings, said U.S. intelligence and counterterrorism officials who have been studying the terror group's activities.

Those changes, officials say, suggest that the terror group is evolving to one more heavily dependent on local militants who are less committed to broader jihadist goals.

The officials, who spoke on condition of anonymity to discuss intelligence reports, said that the number of foreign fighters coming across Iraq's borders had dropped from hundreds to "tens," and the membership of Al Qaeda in Iraq, or AQI, has plunged from thousands at its peak in 2006-2007 to hundreds now.

Intelligence reports indicate that not only has AQI become less effective and less popular, it's become a different operation, said one senior counterterrorism analyst.

During its heyday, Al Qaeda in Iraq had ties to the terror group's leadership with an eye to expanding beyond Iraq's borders to a broader jihadist effort against the west.

Now, the U.S. official said, AQI is focused on Iraq, struggling to maintain a foothold there as its ties to the central Al Qaeda leadership weaken. The terror group's leaders, including Osama bin Laden, are now believed to be hiding in safe havens in Pakistan, along the rugged border with Afghanistan.

Still, military leaders from Gen. David Petraeus, the top U.S. commander in the Middle East, on down have repeatedly warned that progress in Iraq is fragile, and it is too soon to count AQI out.

As the bulk of U.S. forces pull out of Iraq's cities by early next week, military commanders are already seeing the expected spike in violence, including more large-scale attacks. A truck bombing near Kirkuk on Saturday killed at least 75 people, and an attack Wednesday in a Shiite district of Baghdad killed at least 56.

The attacks have targeted Shiite areas, and appear aimed at inflaming sectarian tension by provoking a similarly violent response from Shiites that could plunge the country into civil war. The attacks also give Al Qaeda successful assaults to promote as they reach out to their loyalists.

"We think we have beaten back Al Qaeda to the point where they are now conducting attacks that are basically propaganda campaigns to make it look as though they are driving us out of Iraqi cities," Pentagon press secretary Geoff Morrell asserted Wednesday.

Intelligence officials said that the U.S. is concerned about the impending transfer of thousands of jailed militants from U.S. to Iraqi control, and whether Al Qaeda loyalists could be released.

Right now, said one counterterrorism official, intelligence reports and internal communications suggest that Al Qaeda is suffering from a lack of volunteers, but that could change if some of those prisoners make their way back into the Al Qaeda fold.

According to Pentagon spokesman Air Force Lt. Col. Pat Ryder, the U.S. military has seen some recidivism by those released from Iraqi prisons, but it is very low. At this point, he said, there is "no real evidence linking the release" of detainees to any increase in violence.

"There is a concerted effort under way to release those who are not a threat to security," Ryder said.