Donald Rumsfeld would instantly recognise the extraordinary state of modern Iraq. The disgraced former US Defence Secretary has not been anywhere near the country since he left office two years ago. Few Iraqis - or Americans - would welcome him back today.

Yet it was Mr Rumsfeld who envisaged a post-invasion Iraq that would have a weak but functioning government, could begin to exploit its oil riches and was protected by a fledgling Iraqi security force, as American and British troops withdrew. Unfortunately for the former Pentagon chief, the Iraqi people and US forces, his vision has taken five and a half long, bloody and costly years to become reality.

But the signs are unmistakeable. It is impossible to move in Baghdad without being confronted with the seismic change in the balance of power. Only a year ago it was mainly American troops who provided what little security the capital enjoyed. Power resided with the US Ambassador and military commander and was exercised from the quaintly named US Embassy annex, Saddam Hussein's giant marble-tiled palace on the Tigris river, from where thousands of US officials and officers ran the country.

The Iraqi Government and parliament were largely decorative. Their debates and decisions had little impact on their countrymen. Iraqi soldiers were treated with contempt, indifference and occasional pity. The Iraqi police, heavily infiltrated by militias, were blamed for kidnappings and killings. Most sane people went to great lengths to avoid them.

Until recently it would have been unthinkable to mistake a well-fed, well-trained and well-equipped US soldier for an Iraqi one. But I did just that driving from Baghdad airport along one of the city's most notorious roads. It was not just that the Iraqis looked like Americans, in Humvees, with sunglasses, similar helmets and uniforms. It was the casual professionalism and confident swagger that really threw me.

On the American side, troops have largely disappeared from the streets. Brigadier General Jeff Smith, the Deputy Commander of US forces in central Iraq, once one of the most dangerous areas in the world, estimates that about 1 per cent of the 17,000 men and women under his command are now involved in combat operations. The rest carry out training and joint patrols with Iraqi troops. The general spends much of his time trying to lure Western companies to invest in his area.

Foreign oil companies are doing just that and others are waiting to move in behind them for what could be a bonanza.

Even the violence is not what it used to be. So many explosives and arms caches have been unearthed that there is a shortage of the one commodity that never seemed to run out. Recently the assassination of an MP was carried out by a motorcycle bomb. Not long ago it would have been unthinkable to use anything smaller than a huge car bomb.

Nouri al-Maliki, Iraq's Prime Minister, embodies the change perfectly. After a life in exile, he was chosen to head the Government as a compromise candidate. Compromise is not an adjective that applies to him any more. He is tough with his enemies, whom he has driven out of most cities, and tough with his friends, the Americans and the British. He wants the Americans out in three years and the British can go now, if they like. The Pentagon needs little encouragement. It is already reassigning top generals, such as David Petraeus, to what many regard now as the real war, in Afghanistan.

In the coming weeks, the Americans will move into a mortar- proof new embassy compound and hand Mr al-Maliki the keys to Saddam's Palace, a turning point in postwar Iraq. The move is likely to indicate the end of the green zone and the first serious attempt at recognising Iraqi sovereignty.

So is the vision of a democratic, prosperous and Western-orientated Iraq, finally within grasp?

Without the distractions of the bombings and shootings, it is easier to see Iraq for what it really is. The country is bloodied and broken. The infrastructure, much of it built on the back of the oil boom of the 1970s, is on its knees. Unemployment runs as high as 60 per cent in some areas. Corruption is rampant. The sectarian divisions, responsible for most of the violence, have been papered over but could reignite at any moment. Al-Qaeda may have been largely defeated, but there are still powerful outside players such as Iran, Turkey, Syria and Saudi Arabia who will continue to destabilise Iraq's affairs.

Ali, an old Iraqi doctor friend, is making final preparations to leave his country for good and start a new life in America. He witnessed the worst of the violence, had to flee his home and move his family to Syria. Surely now that the country finally appears to have turned a corner, he would want to stay?

Ali shakes his head. He has lost five years of his life to Iraq. He no longer believes in the dream. He has learnt from bitter experience that the future only holds disappointment. A pity. Iraq will need all the Alis it can find for the enormous task ahead.

Richard Beeston is foreign editor of The Times

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