The Pentagon's quarterly report provided a sober assessment of the situation in Iraq over the past three months, saying attacks increased by 15 percent over the prior three months and casualties among Iraqis surged 51 per cent, noting most of the violence occurred in Baghdad.
"Conditions that could lead to civil war exist in Iraq," the report stated, adding that concern about civil war has increased within the Iraqi civilian population.
"The security situation is currently at its most complex state since the initiation of Operation Iraq Freedom (March, 2003),” the report said, adding "nevertheless, the current violence is not a civil war, and movement toward civil war can be prevented”.
Rising sectarian fighting between minority Sunnis, who controlled Iraq under Saddam, and the majority Shi'ites, who are ascending in power after decades of oppression, defines the emerging nature of violence in Iraq, the report stated.
Bush's Iraq campaign
The release of the report on Iraq, where 138,000 US troops are fighting, comes as the administration of President George W. Bush launches a new campaign for the increasingly unpopular war before November legislative elections.
Mr Bush recently raised the stakes of the ideological war over Iraq and flatly refused to withdraw, likening the war in Iraq to the battle against Nazism and and fascism.
"We're not leaving so long as I'm the president. That would be a huge mistake," said the president, whose job approval ratings have sunk partly because of the war.
Vice President Dick Cheney, Defence Secretary Donald Rumsfeld, and US Secretary of State Condoleezza Rice have already given speeches accusing Mr Bush's critics of failing to understand the terrorist threat to the United States.
Reaction from opposition Democrats was quick.
"The Pentagons new report today indicates that President Bush, Vice President Cheney and Secretary Rumsfelds speeches are increasingly disconnected from the facts on the ground in Iraq," Senate Democratic Leader Harry Reid said in a statement.
"Even the Pentagon acknowledges Iraq is tipping into civil war," he said.