As General Sir Richard Dannatt’s words were reported around the world, opinion in Washington and also in Basra was divided over whether a British pullout would make matters better or worse.

In 2003 many of Basra’s merchants had been happy that British troops were bringing a semblance of order to the postwar chaos. But the lack of postwar reconstruction progress soon stoked anger among unemployed Shia youths. That anger has been skilfully exploited by hardline Shia militias with Iranian backing.

The infiltration by the religious militias has put the British forces in a difficult position: with fewer than 8,000 troops in the south, plus a contingent of soon-to-depart Italians and Danes, the Army does not have the manpower to go after the armed groups and risk a full-scale Shia rebellion. Such an uprising could dwarf the insurgency that the Americans are struggling to contain within the Sunni minority to the north.

The Army was forced to turn a blind eye as the militias slowly took over the city, killing their opponents and anyone who did not conform to strict Islamic codes — women without head scarves, including Basra’s many Christians, and musicians and alcohol sellers. Most Sunnis have been forced out of the city. Academics have fled to Syria.

Suham Khudayir, who works at the state oil company, said: “Our security forces are weak and incompetent and sometimes infiltrated by political groups. If the British Army pull out there will be a huge security gap that might lead to a disaster in the city.”

Others blame the British for allowing a cosmopolitan city to descend into a repressive Islamic mini-state. Faced with militiamen who kill women and children for selling pop music tapes, the British attitude of winning hearts and minds has had negligible impact.

Despite Basra’s current woes, people such as Saad Karim, a mobile phone shop-owner, believe that things will deteriorate if British troops leave. “We still believe that their removal will lead to a much worse situation, because we haven’t got a proper alternative yet. All these Islamic parties and militias are corrupt and ineligible to take over and run the city.”

The British have tried to rein-in the militias, arresting commanders and trying to root out death squads in the police force. The price was high: two undercover soldiers were caught by the militias and the Army had to drive armoured vehicles through the wall of a police station to free them, as protesters threw stones and petrol bombs.

Since then, the city council, headed by a conservative religious party, has mostly refused to have anything to do with them. The city has continued to decay, with streets covered by rubbish and pools of sewage.

When the Army handed over its base in Amarah to Iraqi security forces and consolidated troops in the Basra region, the base was looted by angry locals while Iraqi troops did nothing.

In Washington, the White House side-stepped General Dannatt’s interviews, preferring to claim that his subsequent remarks yesterday made clear that he believed in “standing shoulder-to-shoulder” with America in Iraq.

Tony Snow, President Bush’s spokesman, denied that the general had called for the withdrawal of troops. “That is not what he said,” insisted Mr Snow. The remarks “were largely taken out of context”.

Privately, one White House official expressed relief that General Dannatt had clarified his words “before we had to make a more substantial response”. President Bush’s opponents nonetheless seized on the story, the Democratic National Committee issuing a statement that “Democrats reject President Bush’s failed stay-the-course strategy and believe we need a new direction in Iraq that is both tough and smart” .

There have been heavy hints that Mr Bush himself may be preparing to adjust military strategy when the Iraq Study Group, co-chaired by the former Secretary of State James Baker, publishes its report. John Warner, the Republican chairman of the Senate Armed Services Committee, said on his return from Iraq that there might have to be “a change of course” if violence is not brought under control “in two or three months”.

Mr Baker has suggested that his group is aiming for a “consensus” somewhere between the “stated alternatives of stay-the-course and cut-and-run”.

General Peter Pace, the Chairman of the Joint Chiefs of Staff, raised questions this week about whether the foundation of the existing strategy — relying on Iraqi forces to take over responsibility for security — was holding firm.

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