Bush's announcement, in a speech at the National Defense University, is perhaps his last major move on troop strategy in Iraq. He said more U.S. forces could be withdrawn in the first half of 2009 if conditions improve in Iraq.
But he leaves office in January, so his successor will be making the wartime decisions.
There are about 146,000 U.S. troops in Iraq.
"Here is the bottom line: While the enemy in Iraq is still dangerous, we have seized the offensive, Iraqi forces are becoming increasingly capable of leading and winning the fight," Bush said.
Still, most of the U.S. forces are staying. Bush chose to emphasize that he was moving forward with "additional force reductions."
But Democrats quickly shot back that Bush isn't doing enough to get troops out of Iraq, and into Afghanistan, where violence is rising.
"The President's plan to reduce force levels in Iraq may seem to signal movement in the right direction, but it really defers troop reductions until the next administration," said the chairman of the House Armed Services Committee, Rep. Ike Skelton, D-Mo. "More significant troop reductions in Iraq are needed so that we can start to rebuild U.S. military readiness and provide the additional forces needed to finish the fight in Afghanistan."
Said Senate Majority Leader Harry Reid: "I am stunned that President Bush has decided to bring so few troops home from Iraq and send so few resources to Afghanistan."
In all, about 8,000 U.S. forces will be coming back, the president said.
One Marine battalion, numbering about 1,000 troops, will go home on schedule in November and not be replaced. An Army brigade of between 3,500 and 4,000 troops will leave in February. Accompanying that combat drawdown will be the withdrawal of about 3,400 support forces over next several months.
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