Electric power generation and oil production in Iraq exceeded pre-war levels during the past quarter for the first time in more than a year but sectarian violence threatens to undo the progress, a US audit said.
The report by a special inspector general also said pervasive corruption within the Iraqi government and doubts about its capacity to run and maintain completed projects are problems that need to be dealt with.
"While the program achieved progress this quarter, it remains a sobering reality that this progress occurred under the pall of an increasingly lethal security environment," wrote Stuart Bowen, the inspector general for Iraq reconstruction.
The report said 56 death claims were filed by contractors with the US Department of Labor during the quarter, raising the total to 575 since march 2003. It also noted UN reports of high civilian casualties in May and June.
"Attacks, kidnappings and threats against contractors and Iraqi officials continue to hinder reconstruction efforts," it said.
"Moreover, the lethal environment in Iraq restricts the movement of US government personnel, thus limiting the number of Americans working in Iraqi ministries," the report said.
"This inhibits US efforts to build capacity within the Iraqi system," it said.
The deteriorating security situation, for instance, has curtailed plans to establish provincial reconstruction teams (PRTs) around the country to help build up the administrative capacity of provincial governments, the report said.
The inspector general found that the PRT program is behind schedule and "currently faces serious challenges, including security threats, insufficient staffing and limited resources."
The problems strike at a pillar of the US counter-insurgency strategy in Iraq, which depends on reconstruction work to generate jobs to dissuade unemployed Iraqis from joining the insurgency.
As of the end of June, the United States had obligated more than 18.9 billion dollars for relief and reconstruction projects in Iraq, and spent more than 14.8 billion dollars of that.
Electricity output nationwide now exceeds 5,000 megawatts, and oil production reached 2.5 million barrels a day during the quarter, the highest levels achieved in more than a year, the report said.