America's mission in Iraq should shift from one of combat to supporting and training Iraqi forces, with an accompanying diplomatic offensive to enlist the help of countries across the Middle East in bringing order to the country.

This is the verdict of the much-anticipated report by the Iraq Study Group, the bipartisan panel of experienced US officials appointed to provide a new direction for American policy in Iraq.

In their report, which was presented to President Bush and made public this afternoon, the panel made 79 recommendations for the US Government to follow.

They included: vigorous diplomacy throughout the Middle East, talks with such nations as Syria and Iran, and threatening the Iraqi Government with reduced economic and military support if it fails to reach certain "milestones" determined by Washington.

"The current approach is not working and the ability of the United States to influence events is diminishing," said Lee Hamilton, the former Democratic congressman and co-chair of the commission at its launch.

"No course of action in Iraq (is) guaranteed to stop a slide toward chaos. Yet, in our view, not all options have been exhausted."

Alongside his co-chairman, James Baker III, the former Secretary of State and Bush family friend, Mr Hamilton said that urgent action was needed to rescue the US mission in Iraq, which has already cost the country $400 billion and divided the American people.

In a telling contradiction to the policy articulated by Mr Bush as recently as the autumn, Mr Hamilton said the panel was unanimously opposed to "a stay the course solution. In our opinion that approach is no longer viable".

Instead the panel made what Mr Hamilton described as three equally important and mutually reinforcing recommendations:

• to put pressure on the Iraqi Government to achieve national reconciliation;
• to make the primary mission of US troops in Iraq one of training and support; and
• to pursue a broad diplomatic agenda aimed at securing the help of Iran and Syria in Iraq and an Arab-Israeli peace settlement.

In stark terms, Mr Hamilton said that if the Iraqi Government was not doing enough to reach milestones of national reconciliation and better services for ordinary Iraqis, then America should reduce its military and economic support for the institutions it helped install whether the security of the country was improving or not.

"We must help the Iraqis help themselves," he said.

The focus of the military recommendations made by the panel was the increased embedding of US forces with Iraqi units in training and logistical roles. This would allow the vast majority America's 140,000 combat troops to begin their withdrawal from Iraq in the next year, the panel said.

"As these actions proceed, US combat forces could begin to move out of Iraq," said the report. "By the first quarter of 2008, subject to unexpected developments in the security situation on the ground, all combat brigades not necessary for force protection could be out of Iraq."

The recommendation least palatable to the White House, not to mention members of Congress, is expected to be the report's recommendation that America engage in talks with Syria and Iran on the future of Iraq.

The Bush Administration has accused both countries of sponsoring terrorism but Mr Baker said that it was time for the US to talk to its enemies as well its friends.

"Given the ability of Iran and Syria to influence events within Iraq and their interest in avoiding chaos in Iraq, the United States should try to engage them constructively," the report said.

The push for a Middle East peace process is likely top receive the strong backing of Tony Blair tonight when he arrives in Washington for talks.

Looking ahead to the release of today's report, the Prime Minister, who was interviewed by the panel, said: "We have to pursue what I call a policy for the whole Middle East, and that means in particular and starting with finding a solution to the Israel-Palestinian conflict, which I think is absolutely essential if we are to put that region on a stable footing."

In a swipe at the vicious, polarising tone of the US congressional elections, the bipartisan panel of five Democratic and five Republican officials also warned the White House that nothing would be achieved without more meaningful political debate at home.

In a letter accompanying the report, the co-chairmen wrote: "Our country deserves a debate that prizes substance over rhetoric, and a policy that is adequately funded and sustainable. The President and Congress must work together. Our leaders must be candid and forthright with the American people in order to win their support."

Around two-thirds of Americans disapprove of Mr Bush's handling of the war and the Democratic party's comprehensive victory in last month's congressional elections was widely interpreted as a demand for the US to find a way to quickly stabilise and withdraw from Iraq.

This morning the President, who is under no obligation to follow the proposals set out in the report, said that his Administration would take every recommendation seriously and "act in a timely fashion".

But Mr Bush, who is also awaiting the results of two other major reviews of US policy in Iraq, raised the possibility of disagreement, saying: "We probably won’t agree with every proposal".

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