Sectarian violence is spreading in Iraq and the security problems have become more complex than at any time since the U.S. invasion in 2003, a Pentagon report said Friday.

In a notably gloomy report to Congress, the Pentagon reported that illegal militias have become more entrenched, especially in Baghdad neighborhoods where they are seen as providers of both security and basic social services.

The report described a rising tide of sectarian violence, fed in part by interference from neighboring Iran and Syria and driven by a"vocal minority"of religious extremists who oppose the idea of a democratic Iraq.

Death squads targeting mainly Iraqi civilians are a growing problem, heightening the risk of civil war, the report said.

"Death squads and terrorists are locked in mutually reinforcing cycles of sectarian strife,"the report said, adding that the Sunni-led insurgency"remains potent and viable"even as it is overshadowed by the sect-on-sect killing.

"Conditions that could lead to civil war exist in Iraq, specifically in and around Baghdad, and concern about civil war within the Iraqi civilian population has increased in recent months,"the report said. It is the latest in a series of quarterly reports required by Congress to assess economic, political and security progress.

Iraqi forces were dealing with more violence Friday as officials said a mortar attack on an open-air market in Mahmoudiya, about 20 miles south of Baghdad, killed three people and wounded 12. Elsewhere, two policemen were also killed and authorities said they found the body of a Saddam Hussein-era intelligence officer who had been kidnapped and shot.

The bloodshed capped a week in which hundreds of Iraqis were killed despite a security crackdown that targeted some of Baghdad's most violent neighborhoods.

A growing number of members of Congress are calling for either a shift in the Bush administration's Iraq strategy or a timetable for beginning a substantial withdrawal of American forces. Although administration officials say progress is being made in Iraq, U.S. commanders have increased U.S. troop levels by about 13,000 over the past five weeks, to 140,000, mainly due to increased violence in the Baghdad area.

In response to the Pentagon's report Friday, the Senate's top Democrat, Harry Reid of Nevada, said it showed the Bush administration is"increasingly disconnected from the facts on the ground in Iraq."

"It is time for a new direction to end the war in Iraq, win the war on terror, and give the American people the real security they deserve,"Reid said.

Sen. Jack Reed, D-R.I., who recently returned from a visit to Iraq, said the report squared with what he saw there.

"Iraq is tipping toward civil war,"Reed said.

Col. Thomas Vail, commander of a 101st Airborne brigade operating in the mostly Shiite areas of eastern Baghdad, told reporters at the Pentagon on Friday that an intensified effort to root out insurgents and quell sectarian violence in the capital is bearing fruit, leading to a decrease in sectarian murders in recent days.

"They understand a big stick,"he said, referring to a bigger U.S. and Iraqi force confronting militias and others responsible for violence like the barrage of coordinated attacks across eastern Baghdad on Thursday. Iraqi police said they killed at least 64 people and wounded more than 286 within a half hour.

Peter Rodman, the assistant secretary of defense for international security affairs, in a separate session with reporters, said that despite progress this summer in reviving the Iraqi economy, raising electricity production and increasing the number of trained Iraqi troops, security conditions have deteriorated.

The report covered the period since the Iraqi government led by Prime Minister Nouri al-Malaki was seated May 20.

From that date through Aug. 11, the average number of attacks per week against Americans and Iraqis was 792, up 24 percent from the previous period of Feb. 11 to May 19. The 792 figure was the highest for any counting period since the war began. The previous high was 641 in the Feb. 11 to May 19 period.

"The last quarter, as you know has been rough,"Rodman said."The levels of violence are up and the sectarian quality of the violence is particularly acute and disturbing."

That assessment was tempered by a degree of optimism that the Iraqi government _ with support from U.S. troops _ will succeed in quelling the sectarian strife.

Optimism among ordinary Iraqis, however, has declined, the 63-page report said.

When asked if they believe"things will be better"in the future, the percentage of Iraqis responding positively has dropped over the past year _ whether they were asked to look ahead six months, one year or five years _ according to polling data cited in the report.

"The security situation is currently at its most complex state since the initiation of Operation Iraqi Freedom,"the report said, using the U.S. military's name for the war that was launched in March 2003 to topple Saddam Hussein.

One of the most celebrated events during the period on which Friday's report was based was the killing of the leader of al-Qaida in Iraq, Abu Musab al-Zarqawi. The report said that although this was a major success, al-Qaida remained a threat because of its"resilient, semiautonomous cellular structure."

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