Secretary-General Ban Ki-moon said passage of a law clearing the way for provincial elections in Iraq was "a milestone" in the process of national reconciliation, but he warned of the possibility of election violence.

In a report to the U.N. Security Council, Ban said the provincial elections "represent the most significant political event in the coming months in Iraq as they can advance political dialogue, establish representative provincial councils and empower community leaders to meet the needs of local citizens in cooperation with the government."

"At the same time, there is potential for election-related violence and instability, as witnessed recently in Mosul" where attacks in early October forced nearly 10,000 Christians to flee their homes, he said.

"It is therefore essential that the elections be organized in a secure environment and a transparent manner," Ban said.

Provincial elections, the first in four years, are expected to be held on Jan. 31. They are widely seen as a major step in forging power-sharing agreements among Iraq's religious and ethnic communities that the U.S. believes are key to lasting peace.

Ban said the Sept. 24 of the election law was a milestone in the national reconciliation process.

President Bush's administration has been pressing the Iraqis to hold elections to help empower Sunnis, who launched the insurgency in 2003 and boycotted the last provincial ballot in January 2005, leaving power in the hands of Shiites and Kurds. Many Sunnis have since stopped fighting and forged ties with the U.S.

Some Iraqis and foreign observers fear, however, that the election could heighten tensions among Sunnis, Shiites and Kurds — especially in the ethnically mixed north where those groups are competing for power in the volatile city of Mosul and elsewhere. Trouble is also possible in the heavily Shiite south, where the two main Shiite parties in the national government — Prime Minister Nouri al-Maliki's party and the Supreme Islamic Iraqi Council — are competing.

Ban's report, covering activities of the U.N. political mission in Iraq over the last three months, called the security situation in the country "fragile," reiterating that "national reconciliation remains the main priority in Iraq and for ongoing United Nations efforts in the country."