"The situation in Iraq is still tense," Mr Bush said in the first of a new series of speeches on Iraq.
The February 22 bombing of a Shi'ite mosque in Iraq led to the deaths of hundreds in reprisal attacks, but Mr Bush that although many fear the country may still be on the brink of civil war between rival Muslim sects, he was confident that would not happen.
"The Iraqi people made their choice. They looked into the abyss and did not like what they saw," he said. "By their response over the last two weeks, Iraqis have shown the world they want a future of freedom and peace and they will oppose a violent minority."
Mr Bush said forming a new permanent government that represents all factions in Iraq is a key, though difficult next step.
Talks are under way to put together Iraq's first permanent, post-invasion government with participation by Sunni Arabs, Shi'ite Muslims and Kurds.
Mr Bush is engaging in a public relations offensive on Iraq amid increasing worries in the American public.
Only 39 per cent of Americans support the way the president has handled Iraq, according to the latest AP-Ipsos poll.
Nearly four out of five Americans, including 70 per cent of Republicans, believe civil war will break out in Iraq, the poll showed.
Mr Bush focussed on Iraqi security forces in his opening
Speech and said that even though they need more training, they "turned in a strong performance" in the wake of the mosque bombing, which the president said was intended by insurgents to provoke a civil war.
"From the outset, Iraqi forces understood that if they failed to stand for national unity, the country would slip into anarchy," Mr Bush said. "And so they stood their ground and defended their democracy."
Sunni caution
His offensive began as Sunni Arab leaders in Iraq voiced caution over a thaw in relations with the US following recent conciliatory declarations by Washington's ambassador to Iraq.
US Ambassador Zalmay Khalilzad said on Sunday that US officials were involved in talks with rebels, the day after he vowed the United States would not keep permanent bases in the ethnically tense country.
With the unity government's makeup yet to be agreed on, Mr Khalilzad said he opposed sensitive portfolios going to "sectarian" politicians and lamented allegedly Shiite-commanded death squads.
While some Sunnis said Mr Khalilzad's declarations constituted a watershed in US policy, others maintained the comments were simply the result of a "convergence of interests" given the precarious situation in Iraq.
"There is a change in the American strategy and a greater understanding since the arrival of ambassador Zalmay Khalilzad," said Sunni Arab politician Saleh al-Motlaq.
Mr Motlaq heads the secular National Dialogue Front which has 11 seats in the 275-member parliament.
"The solution is in the hands of the United States," Mr Motlaq said.
At the same time he deplored Washington's "sectarian" policies which upset Iraq's delicate ethnic balance.
"We need those who have perturbed the equilibrium to take a courageous decision to reestablish this equilibrium," he said.