WASHINGTON – President Bush’s policy in Iraq “is not working,” a high-level commission said Wednesday in a blunt, bleak assessment that urged the administration to embrace diplomacy to stabilize the country and allow withdrawal of most combat troops by early 2008.

After nearly four years of war and the deaths of more than 2,900 U.S. troops, the situation is “grave and deteriorating” and the United States’ ability “to influence events within Iraq is diminishing,” the commission warned.

It recommended the U.S. reduce “political, military or economic support” for Iraq if the government in Baghdad cannot make substantial progress toward providing for its own security.

The report said Bush should put aside misgivings and engage Syria, Iran and the leaders of insurgent forces in negotiations on Iraq’s future, and urged him to revive efforts at a broader Middle East peace. Barring a significant change, it warned of a “slide toward chaos.”

On the highly emotional issue of troop withdrawals, the commission warned against either a precipitous pullback or an open-ended commitment to a large deployment.

“Military priorities must change,” the report said, toward a goal of training, equipping and advising Iraqi forces. “We should seek to complete the training and equipping mission by the end of the first quarter of 2008.”

The report intensifies pressure on Bush to change direction, but he is under no obligation to follow its recommendations. Still to come are options being developed in separate studies by the Pentagon, the State Department and the National Security Council. Bush could pick and choose among the proposals of all the reports. The White House says he will make decisions within weeks.