U.S. Ambassador to Iraq, Zalmay Khalilzad, sought to emphasize the positive when he offered an assessment of the situation in Iraq before a congressional committee Thursday. But he said sectarian violence remains a "significant challenge."

In testimony to the Senate Foreign Relations Committee, Ambassador Khalilzad said Americans have reason to be what he called "strategically optimistic" about Iraq, despite the continuing sectarian violence there.

He noted greater political participation of members of the minority Sunni Muslim population, which had boycotted elections in January 2005.  He also said some insurgent groups have joined the fight against foreign terrorists.

"A divide has opened up between the Iraqi Sunni insurgency and al-Qaida and irreconcilable elements, as evidenced that some insurgent groups have offered to provide intelligence, or to conduct operations against the terrorists," he said.  "Key regional countries, as well as the international community have reassessed their perspectives on the future of Iraq, with more and more coming to the view that the new government will succeed, and opting to increase their non-military involvement in Iraq."

But Khalilzad acknowledged there are reasons for concern.

"Terrorists have adapted by exploiting Iraq's sectarian faultlines, and sectarian violence has now become the significant challenge to Iraq's future," he explained.  "The security situation in Baghdad remains extremely difficult, as the capital has become the focal point of terrorists and sectarian violence.  A few countries, particularly Syria and Iran, continue to engage in actions to destabilize Iraq, providing sanctuary, training, arms and financing to the extremists fighting the new government."

In a speech in Washington earlier this week, Khalilzad refused to characterize the violence in Iraq as the beginnings of a civil war.  On Thursday he left open the possibility that the situation may be moving beyond a sectarian conflict.

"Whether this is the beginning of a civil war or is something that can be contained or reversed, only retrospectively we can judge," he added.

The ambassador again rejected calls for U.S. troops to withdraw immediately, arguing such a departure could be destabilizing for the region and the world