President Bush on Monday said the inauguration of Iraq's new cabinet over the weekend is a "watershed event" that marks the newest "constitutional democracy in the heart of the Middle East" and a major milestone in that country's movement toward stability.

"This is a free government under a democratic constitution and its formation marks a victory for the cause of freedom in the Middle East," Bush told the National Restaurant Association meeting in Chicago.

Bush called on Iraq's new government to seize the moment and for the country's three main sectarian groups to pursue a common agenda. Bush told the crowd that in a phone call to Iraq's three main leaders, he congratulated new Prime Minister Nouri al-Maliki, President Jalal Talabani and parliament speaker Mahmoud al-Mashhadani and promised continued U.S. support.

"I thanked them for being courageous and strong and standing for the belief that liberty will help transform this troubled nation," Bush said. "The government is still a work in progress and overcoming longstanding divisions will take time.

"Iraq's new leaders know they have a great deal of work ahead to broaden the base of their government and unite the people. They also understand that representing all Iraqis, and not just narrow sectarian interests, they'll be able to make a decisive break with the past and make a future of progress and opportunity for all their people a reality," Bush said.

"The unity government must now seize this moment and pursue a common agenda for the future," he added. Bush did not pressure the Iraqis to find permanent ministers of interior and defense. Those are the two key posts in the new government that will lead security in the country.

"The prime minister promised that he will soon fill the remaining positions in his government and announced the details of his plans to build his new country, his new Iraq," Bush said.

As Bush praised the Iraqis, British Prime Minister Tony Blair was in Baghdad. Blair will be in Washington, D.C., later this week to meet with Bush and map a strategy on Iraq.

Officials traveling with Blair had said they expected the prime minister to brief the president on his meetings with Iraqi leaders on Monday, then come face-to-face with Bush on Thursday

An aide traveling with Blair predicted that coalition forces will be out of the country in four years. U.S. officials say the role and structure of the coalition may change, but they don't think the troops will be completely withdrawn by then, even though Iraq's new prime minister suggested his country's forces will be able to take over security in most of the country in the next year.

Bush said America will play an increasingly supporting role as the Iraqi government becomes more confident and capable. He said that the United States and coalition partners "will work with the new Iraqi government to adjust our methods and strengthen our mutual efforts" to make sure terrorism is defeated in Iraq.

"Our nation has been through three difficult years in Iraq and the way forward will bring us more days of challenges," Bush told association members.

"The progress we've made's been hard-fought, and it's been incremental. There have been setbacks and missteps, like Abu Ghraib, that were felt immediately and have been difficult to overcome. Yet we have now reached a turning point in the struggle between freedom and terror," Bush said.

Bush said the time has arrived that Al Qaeda has long feared.

"The terrorists can kill the innocent but they cannot stop the advance of freedom," Bush said.

In his remarks to the restaurateurs, Bush also thanked the group for helping people find jobs, particularly new immigrants. The National Restaurant Association estimates that more than 12.5 million people work at 925,000 eateries across the nation. That makes them the largest employer of new immigrants and the largest private employer in the nation, Bush said.

"You know how essential it is that we have an immigration system that is safe, orderly and fair. And I agree with you, and that's why I laid out a vision for comprehensive immigration reform that would lay out five key goals," Bush said.

He cited his plan as one that ensures border security, creates a temporary guest worker program, develops a verifiable and tamper-proof documentation system, finds a rational middle ground to deal with workers already in the country and upholds "the great American tradition of the melting pot."

"Your association estimates that restaurants will add — will need 1.9 million new workers over the next 10 years, which means that you need workers — your need for workers will be growing faster than the American labor force," he said.

"So you understand why effective immigration reform must include a practical and lawful way for businesses to hire foreign workers when they can't fill those jobs with Americans."

Asked by an audience member whether the United States was prepared to deal with a catastrophic event such as a biological attack or pandemic flu, Bush said the administration has prepared a "good strategy."

"Whether or not it would work to perfection — you hope you never have to find out," he said.

FOX News' Wendell Goler and Sharon Kehnemui Liss contributed to this report.