A new top-secret intelligence report warns that Iraqis are losing faith in U.S.-led occupation forces (search), a development that is increasing support for the resistance, officials said Wednesday.

CIA (search) and White House officials refused to confirm the existence of the report, which comes to light amid high-level meetings here on the situation in Iraq. Two other senior U.S. officials said the report paints a worrisome picture of the political and security situation there.

It suggests spiraling violence and a lack of confidence in the U.S.-appointed Iraqi Governing Council (search) may be bringing efforts to a turning point, sending more Iraqis over to the side of insurgents fighting occupation troops, said two officials speaking on condition of anonymity.

Asked about the increase in guerrilla attacks on coalition forces in Iraq, Sen. John McCain, R-Ariz., told a morning news show Wednesday that "these are very intelligent moves that the bad people are making ... time is not on our side."

Because the report is classified, they talked about it only in general terms and only on grounds they not be publicly identified. The officials declined to furnish details.

On the subject of the increasing violence, one official noted that American forces already are using more aggressive raids and other tactics to try to fight insurgents, which officials fear could alienate more Iraqis. For instance, American forces responded with aerial bombing and mortars over the weekend in a show-of-force response to the downing of a U.S. helicopter last week.

On Wednesday, U.S. troops opened fire accidentally on a car carrying a member of the Iraqi Governing Council, the Iraqi administration said. The council member escaped injury but the driver was hurt.

A Pentagon official said Wednesday the administration worries that support of coalition partners also could wane, as more international contingents suffer casualties in Iraq. He spoke after authorities reported a deadly truck bomb attack against the headquarters of the Italian Carabinieri police in the southern Iraqi city of Nasiriyah (search) Wednesday.

Meanwhile on the political side, the CIA report warns, appointed Iraqi leaders don't appear to be up to the job of governing or working toward holding elections, one official said.

He declined to say what, if any, recommendations the CIA made in the report delivered to the administration Monday.

White House spokesman Scott McClellan wouldn't comment on classified documents, but said: "There are a lot of indications to show that the Iraqi people want the coalition forces to stay and finish the job. They do not want to return to the days of a brutal, oppressive regime. They recognize that there is a better future coming for them."

The Philadelphia Inquirer, which first reported on the CIA assessment in Wednesday's editions, said the report found it is impossible to completely seal Iraq's borders against infiltration by foreign fighters. It also raised concern that majority Shiite Muslims (search) could begin joining minority Sunnis in turning against the occupation, the newspaper said.