Iraq regains control of cities as U.S. pulls back

By Tim Cocks and Muhanad Mohammed

BAGHDAD (Reuters) - Iraq regained full control of its towns and cities on Tuesday, declaring the day a national holiday for Iraqis to celebrate the withdrawal of U.S. troops, six years after invading to topple Saddam Hussein.

Though some Iraqis fear the first step of a full U.S. withdrawal leaves them open to attack, the government declared "National Sovereignty Day" a holiday and held a military parade to flex its muscles at a still stubborn insurgency.

"This day, which we consider a national celebration, is an achievement made by all Iraqis," Prime Minister Nuri al-Maliki said in a televised address, as citizens drove around the streets in celebration.

"Our incomplete sovereignty and the presence of foreign troops is the most serious legacy we have inherited (from Saddam). Those who think that Iraqis are unable to defend their country are committing a fatal mistake."

In another sign of what he called the start of a new era, the Oil Ministry held an auction for eight oil and gas fields -- Iraq's first major investment by multinationals that were ushered out nearly 40 years ago under nationalization.

But there was a bloody reminder of the war unleashed by the 2003 U.S. invasion as the U.S. military said four U.S. soldiers based in Baghdad had died of combat-related injuries on Monday. It gave no further details.

SECURITY PACT

By midnight on Tuesday, all U.S. combat units must have left Iraq's urban centers and redeployed to rural bases, according to a bilateral security pact that requires all U.S. troops except for trainers and advisers to leave Iraq by the end of 2011.

The day's festivities included a parade in Baghdad's heavily fortified Green Zone government and diplomatic district, viewed by Iraqis as the ultimate symbol of the foreign military presence until local forces took control of it in January.

Thousands of Iraqi soldiers and police paraded on foot or in U.S.-donated Humvees, armored cars and tanks -- in the same compound, beside a monument to the Unknown Soldier, where Saddam's forces used to stage elaborate displays of power.

The state television channel, Iraqiya, has been running a countdown clock in a corner of its screen.

And across Baghdad, signs were draped on the ubiquitous concrete blast walls reading "Iraq: my nation, my glory, my honor."

"We still have important steps to take and we know our way forward is not easy," Interior Minister Jawad al-Bolani told Reuters at the parade.

"We need to develop our intelligence gathering and technical abilities, because the next war is an intelligence war."

The commander of U.S. forces in Iraq, General Ray Odierno, confirmed U.S. combat troops were fully out of the cities.

"A small number of U.S. forces will remain in the cities to train, advise ... and enable Iraqi security forces," he told journalists in Baghdad, declining to give specific numbers.

OILFIELDS ON OFFER

At the nearby Rasheed Hotel, foreign oil executives gathered for the day-long oil and gas fields auction, eager to get a foothold in the country that has the world's third largest oil reserves.

But Iraq's ambitions soon hit commercial realities as it found that there was a big gulf between what it was willing to pay for the 20-year service contracts and the fees the companies were willing to accept.

A consortium led by the British-based BP accepted a contract to develop the biggest oilfield, the 17-billion barrel Rumaila in the south, but only after a group led by Exxon Mobil of the United States had rejected the government offer.

Iraq needs the expertise of the oil majors to restore its oil infrastructure, hit hard by sanctions and war.

But awards to U.S. and British firms could anger opponents of the invasion, who have said the 2003 war was designed to give Western oil companies control over Iraqi oil reserves. U.S. and British officials have denied the accusations.

The tight security at the venue, and the presence of bodyguards with earpieces escorting the international energy executives, was a reminder of how unstable Iraq still is.

Some fear a resurgence of violence without the presence of U.S. forces to police Iraq's cities, although their bases outside remain close enough for them to redeploy if needed.

Militants have stepped up attacks in the past week, including two of the biggest bombings in more than a year, which killed 150 people between them.

But the tit-for-tat violence that brought Iraq to the brink of all-out sectarian civil war in 2006-2007 has receded.

In any case, Iraq has to take the plunge eventually, with President Barack Obama planning to end the U.S. combat mission by August 31 next year.

The political situation remains unsettled. Tensions have grown between Baghdad and the minority Kurds in Iraq's north, and all eyes will now be on a parliamentary election in January that will test Maliki and Iraq's fledgling democracy.