Iraq's government must rapidly raise its game to cement the country's fragile new peace, the United States ambassador in Baghdad has declared.

Iraq was "immeasurably better" than a year ago, Ryan Crocker told The Times, but Nouri al-Maliki's administration had to provide jobs and services to undercut the militias and prevent a slide back to conflict. "Failure to consolidate security gains with progress in other areas would be highly dangerous."

In a wide-ranging interview Mr Crocker also urged Britain to maintain a force near Basra, saying it still had an important role advising Iraqi commanders, supporting reconstruction efforts, and guarding American supply routes.

"My personal hope is that the UK will decide to maintain a division headquarters beyond 2008 as the Iraqi government works to extend its authority in Basra," he said. "That's where the oil is. It's an important place."

Mr Crocker, a notoriously understated man, offered a remarkably upbeat assessment of the security situation. He said the declining violence was "clearly more than a temporary ceasefire". He spoke of a "fundamental change" in the atmosphere, with a mood now of reconciliation not retribution. He insisted: "We are in an immeasurably better place in January 2008 than in January 2007."

As American and Iraqi forces continued a major operation against al-Qaeda insurgents in Diyala province, he expressed confidence that the Mahdi army, led by the radical Shia cleric Moqtada al-Sadr, would not return to violence when its six-month suspension of paramilitary activities ends next month.

The ambassador said Shias were sickened by the Mahdi Army's shootout with a rival militia that left 52 dead in the holy city of Karbala in August. They no longer felt so threatened by Sunni insurgents that they required the Mahdi Army to defend them.

"My sense is that in this climate to say 'back to the trenches' would be very bad poltiics indeed within the Shia community," Mr Crocker said.

The ambassador was also speaking at the end of what he called an "encouraging" week politically, with the Shia-controlled parliament finally approving legislation that promises government jobs or pensions to former mid-level members of Saddam Hussein's predominantly-Sunni Baath party.

"There's an awareness on the part of the communities that they either hang together or hang separately...I think the horrors of 2006 and 2007 brought that home," he said.

But Mr Crocker insisted that Iraq could yet slide back into conflict. The government had to cement the security gains by providing more electricity, water, health care, education and jobs. That would boost its standing and undercut the militias' control of many areas of Iraq.

Parts of Baghdad still receive barely two hours' water and electricity a day. "When there's fighting in the streets you're not going to get a lot of power into houses. When the fighting has stopped someone had better be out there rebuilding sub-stations, installing new transformers and stringing wires. This has to be an area of critical focus," Mr Crocker said.

Times Recommends

• Anti-Iran wave sweeps Iraq over disputed oil well
• Comic strip promises young Kenyans fresh outlook
• ‘Ceausescu looked in my eyes, and he knew that he was going to die’