The main Shiite alliance in Iraq has postponed until Tuesday a meeting to decide to replace Ibrahim Jaafari as its candidate for prime minister.
Sunni Arab and Kurdish groups want the alliance to dump Mr Jaafari concerned that he is not sufficiently neutral to lead a government of national unity.
The issue has delayed the formation of a new government.
Three months after the polls, even some Shiite clerics are pushing for a swift resolution amid fears that Iraq could be on the brink of civil war.
President Bush has also urged them to reach a compromise.
“Iraq’s leaders need to rise to the moment, to put aside their personal agendas and take charge of their destiny,” said Mr Bush.
Mr Bush warned that delays in forming a government could create a vacuum that “terrorists” can exploit and slow down progress.
But he resisted calls by some US politicians to consider pulling out troops from Iraq.
The president said: “Americans and Iraqis have sacrificed much for the goal of democracy in Iraq, and we would both expect results.”
“The longer Iraq’s delay in forming a unity government, the greater the risk that the terrorists and former regime elements will succeed in their efforts to foment division, and to stop the progress of Iraq democracy,” he said.
Many hope a government that unites the majority Shiite bloc and the smaller Sunni and Kurdish groups will help to rein in the mounting insurgency.
But Mr Jaafari seems determined to stay on as prime minister.
No propaganda campaign: US
Meanwhile, the US military has denied it exaggerated the importance of Abu Musab al-Zarqawi, the leader of al-Qaeda in Iraq, as part of a propaganda campaign to turn Iraqis against the insurgency.
The Washington Post reported that some military intelligence officials believe the campaign has overstated Zarqawi’s importance and helped the Bush administration tie the war to the September 11, 2001 attacks on the United States.
The Post cited internal military briefing documents that discussed the campaign as an attempt to turn Iraqis against the insurgency by playing on their perceived dislike of foreigners.
One document from 2004 listed “PSYOP”, or psychological operations, as one of three methods to “Villainize Zarqawi/leverage xenophobia response,” the Post said.
The other two methods listed were “Media Operations” and “Special Ops (626),” a reference to the special operations task force assigned to the hunt for Zarqawi and fugitive leaders of the former regime.
“There is no propaganda campaign,” said Colonel Barry Johnson, a US military spokesman in Iraq.
“Zarqawi is real. Al-Qaeda in Iraq is real. The violent acts he and AQI inflict on this country are real. This is not stuff we make up,” he said in an email.
“He and the organisation he heads are key elements of the conflict, trying to drive a sectarian wedge between the people in order to stop political progress and establish an extremist state,” he said.
<!–The Washington Post story quoted Colonel Derek Harvey, who served as a military intelligence officer in Iraq and as a top officer handling intelligence on Iraq for the Joint Staff, as saying that Zarqawi and other foreign insurgents remain “a very small part of the actual numbers.”
“Our own focus on Zarqawi has enlarged his caricature, if you will – made him more important than he really is, in some ways,” Harvey said at an army meeting last summer at Fort Leavenworth, Kansas, according to a transcript obtained by the Post.
“The long-term threat is not Zarqawi or religious extremists, but these former regime types and their friends,” Harvey said.
The newspaper said that military’s propaganda campaign in Iraq has been largely aimed at Iraqis, but appears to have spilled over into the US media as well.
One briefing slide prepared for General George Casey, the US commander, lists the “home audience” as one of six major targets of the American side of the war, it said.
A slide in the same briefing noted a “selective leak” about Zarqawi to a US reporter based in Baghdad, the Post said.–>
New hope for German hostages
Meanwhile, German Foreign Minister Frank-Walter Steinmeier says he’s confident the government can secure the release of two German hostages held in Iraq after a video of the pair was released by their captors.
Officials say they’ve spent the night analysing the video of 28-year-old Thomas Nitzschke and 32-year-old Rene Brauenlich that was posted on an Islamic website yesterday along with a new ultimatum from their captors.
The 24-second video dated March 28 shows the men looking drawn and haggard and Mr Nitzschke pleading with the German government to save their lives.
The kidnappers have demanded the release of all Iraqis held in US-run prisons and have told Germany to stop helping the US and Iraq.