His direction came amid continued factional bickering that has hindered the formation of a government since the December 15 general elections.
"The fundamental problem in Iraq is one of sectarianism and ethnic conflict," Ambassador Khalilzad told reporters. He said that this polarisation had pervaded every aspect of government and could cause the US Government to rethink the millions of dollars it poured into new security forces.
"We're not going to invest the resources of the American people to build forces run by people who are sectarian," he said. “The various communities need to come together in a national compact and that can be achieved first through the establishment of a national unity government," he said.
The ambassador alluded that the United States did not wish to see ministers perceived as sectarian occupying key posts within the security ministries. He implicitly warned that the ministers of the interior and of defence should be broadly acceptable, "non sectarian and have no ties to militias."
Stopping the insurgency
Leaders of the minority Sunni Arab community blame militias loyal to the dominant Shiite community of widespread abuse and extra-judicial killings. They also accuse some interior ministry forces of being involved in "death squads".
In the interests of quelling the insurgency the ambassador said that a prompt formation of a unity government was important but did recognise that politicians needed to get the balance right. He also called for the establishment of a national security council.
"This institution could give cover to the cabinet for difficult decisions, such as what to do about militias, debaathification and the insurgency," the ambassador said.
Further bloodshed
Meanwhile there has been no let up in the insurgency with at least 23 Iraqis killed and 60 wounded in a spate of attacks on Monday. In one incident 12 commuters were burnt to death inside a minibus in a Baghdad suicide bombing.
In a separate bombing, 19 day labourers were injured in central Baghdad while cueing for work, an interior ministry official has said. But the bombing could have been much worse as police discovered a nearby car packed with explosives which had failed to go off.
"I was thrown back and everything was flying around me," Ammar Jabbar Karim, 28, who sustained wounds in an arm and both his legs, told AFP.
South of Karbala, in southern Iraq, a roadside bomb attack killed a US soldier. According to an AFP count based on Pentagon figures, the fatality brings the US military death toll since the March 2003 invasion to 2,278.