The US troop surge, built up over the first half of 2007, saw the Americans directly and more proactively tackling the militant Islamist groups linked to al-Qaeda under the umbrella of the "Islamic State in Iraq". At the same time, a number of the more Iraqi nationalist insurgent groups, such as the 1920 Revolution Brigades and the Islamic Army in Iraq, turned against the al-Qaeda radicals and joined Sunni tribal leaders in urging their followers to join the Americans against them. The result: by the end of the year, around 80,000 Sunni youths were on the US payroll as local guards looking out for al-Qaeda infiltrators. This had a big effect in pacifying troubled Sunni areas such as Anbar province and parts of Baghdad.

But the campaign is unfinished, with frequent violence in areas to the north of the capital, and displaced Islamist radicals surfacing at Mosul in the far north too. Many of the Sunni vigilantes have Shia blood on their hands, and their emergence as virtual militias has raised fears of future sectarian battles if things go wrong. On the Shia side of the equation, the order given in August by the Shia cleric Moqtada Sadr to his Mehdi Army militia to halt hostilities for six months had a big effect in reducing violence.

That decision may have been influenced by Iran, which, also in August, promised Prime Minister Nouri Maliki that it would stop supporting Shia militias and put its weight behind the Baghdad government. Starting in March, Iranian and US officials held several rounds of direct talks on Iraq, a dialogue that is set to continue. US commanders have said there are signs of a drop in help from Iran for radical Iraqi militias, and also in the flow of Arab fighters coming across the border from Syria.

If the current signs of a slight thaw in Washington's relations with Tehran and Damascus are sustained in 2008, that would benefit Iraq. But it will not be an easy year. In the south, British forces have already handed over security control to Iraqis and taken up a background role, which will see UK forces cut by half to a mere 2,500 or so in the spring. In Basra and elsewhere, much power remains in the hands of Shia militias vying for supremacy and control of oil resources.

The state faces a tough struggle to impose its authority, which it must do if Iraq is to hold together. That highlights the weakness at the center. Politicians, divided largely on sectarian and ethnic lines, have so far failed to agree on a shared vision of the country's future shape, and to pass legislation to consolidate it. While the Iraqi army and police have been built up in numbers, there are doubts about whether they are up to filling the vacuum as US forces draw down. The police in particular are riddled with militia influence.

By July, the "surge" will be over. US troop levels will be back to the 130,000 or so who were there early in 2007, and pressure will be mounting for more to go home. This is another reason why 2008 will be a crunch year for Iraq - the year in which the balance will tilt one way or the other. Whichever way it goes, for better or for worse, Iraq will be a very different place in a year's time.