Iraqis play dominos and drink tea on a Baghdad side street now that the insurgency is largely in retreat.

karim kadim / the associated press

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BAGHDAD — The United States is now winning the war that two years ago seemed lost.

Limited, sometimes sharp fighting and periodic terrorist bombings in Iraq are likely to continue, possibly for years. But the Iraqi government and the U.S. now are able to shift focus from mainly combat to mainly building the fragile beginnings of peace — a transition that many found almost unthinkable as recently as one year ago.

Despite the occasional bursts of violence, Iraq has reached the point where the insurgents, who once controlled whole cities, no longer have the clout to threaten the viability of the central government.

That does not mean the war has ended or that U.S. troops have no role in Iraq. It means the combat phase finally is ending, years past the time when President Bush optimistically declared it had. The new phase focuses on training the Iraqi army and police, restraining the flow of illicit weaponry from Iran, supporting closer links between Baghdad and local governments, pushing the integration of former insurgents into legitimate government jobs and assisting in rebuilding the economy.

Scattered battles go on, especially against al-Qaida holdouts north of Baghdad. But organized resistance, with the steady drumbeat of bombings, kidnappings, assassinations and ambushes that once rocked the capital daily, has all but ceased.

This amounts to more than a lull in the violence. It reflects a fundamental shift in the outlook for the Sunni minority, which held power under Saddam Hussein. They launched the insurgency five years ago. They now are either sidelined or have switched sides to cooperate with the Americans in return for money and political support.

Gen. David Petraeus, the top U.S. commander in Iraq, told The Associated Press this past week there are early indications that senior leaders of al-Qaida may be considering shifting their main focus from Iraq to the war in Afghanistan.

Ryan Crocker, the U.S. ambassador to Iraq, told the AP on Thursday that the insurgency as a whole has withered to the point where it is no longer a threat to Iraq's future.

"Very clearly, the insurgency is in no position to overthrow the government or, really, even to challenge it," Crocker said. "It's actually almost in no position to try to confront it. By and large, what's left of the insurgency is just trying to hang on."

Shiite militias, notably the Mahdi Army of radical cleric Muqtada al-Sadr, have lost their power bases in Baghdad, Basra and other major cities. An important step was the routing of Shiite extremists in the Sadr City slums of eastern Baghdad this spring — now a quiet district though not fully secure.

Al-Sadr and top lieutenants are now in Iran. Still talking of a comeback, they are facing major obstacles, including a loss of support among a Shiite population weary of war and no longer as terrified of Sunni extremists.

Despite the favorable signs, U.S. commanders are leery of proclaiming victory or promising that the calm will last.

The premature declaration by the Bush administration of "Mission Accomplished" in May 2003 convinced commanders that the best public-relations strategy is to promise little, and couple all good news with the warning that "security is fragile" and that the improvements, while encouraging, are "not irreversible."

Iraq still faces a mountain of problems: sectarian rivalries, power struggles within the Sunni and Shiite communities, Kurdish-Arab tensions, corruption. Any one of those could rekindle widespread fighting.

But the underlying dynamics in Iraqi society that blew up the U.S. military's hopes for an early exit, shortly after the fall of Baghdad in April 2003, have changed in important ways in recent months.

Systematic sectarian killings have all but ended in the capital, in large part because of tight security and a strategy of walling off neighborhoods purged of minorities in 2006.

That has helped establish a sense of normalcy in the streets of the capital. People are expressing a new confidence in their own security forces, which in turn are exhibiting a newfound assertiveness with the insurgency largely in retreat.

Statistics show violence at a four-year low. The monthly American death toll appears to be at its lowest of the war — four killed in action so far this month as of Friday, compared with 66 in July a year ago. From a daily average of 160 insurgent attacks in July 2007, the average has plummeted to about two dozen a day this month. On Wednesday the nationwide total was 13.

Beyond that, there is something in the air in Iraq this summer.

In Baghdad, parks are filled every weekend with families playing and picnicking with their children. That was unthinkable only a year ago, when the first, barely visible signs of a turnaround emerged.

Now a moment has arrived for the Iraqis to try to take those positive threads and weave them into a lasting stability.

The questions facing both Americans and Iraqis are: What kinds of help will the country need from the U.S. military, and for how long? The questions will take on greater importance as the U.S. presidential election nears, with one candidate pledging a troop withdrawal and the other insisting on staying.