WASHINGTON President Barack Obama will on Thursday name CIA Director Leon Panetta to become defense secretary and nominate General David Petraeus, who is running the war in Afghanistan, to take over the spy agency.
The shakeup ahead of the 2012 presidential election could have broad implications for the Obama administration, which is seeking deeper Pentagon spending cuts and aims to start drawing down U.S. forces from Afghanistan in July.
Panetta, a Democratic Party insider and former White House budget chief, is expected to oversee steady declines in Pentagon spending that diverts weapons dollars to the Treasury Department to help reduce the U.S. deficit.
The departure of Petraeus, considered one of the top U.S. commanders, mixing political savvy with military know-how, also raises big questions about the future of the unpopular, nearly decade-old war effort in Afghanistan.
Analysts fear his departure could derail momentum and undermine efforts to improve U.S. ties with Pakistan.
The White House declined formal comment on the changes, but a senior Obama administration official said Petraeus would retire from the military to take the CIA job.
Details of the changes were confirmed on Wednesday by several U.S. officials.
The shakeup will also include Obama's nomination of the trouble-shooting diplomat Ryan Crocker -- who has served as ambassador to Iraq, Pakistan, Syria, Kuwait and Lebanon -- as the U.S. ambassador to Afghanistan.
Lieutenant General John Allen, deputy commander of U.S. Central Command, will succeed Petraeus as head of the Afghan war effort, U.S. officials said.
The White House hopes Panetta will be able to assume his post on July 1, pending Senate confirmation. Petraeus would take his job at CIA headquarters by the beginning of September.
READ MY LIPS
Veteran Defense Secretary Robert Gates, a holdover from the Bush administration who planned to step down this year, has voiced concerns in the past about Pentagon budget cuts.
Loren Thompson, a prominent industry consultant with close ties to the Department of Defense, said substituting Gates with Panetta, 72, "would undoubtedly result in a faster pace of cuts to the defense budget in future years."
Although it will be difficult, analysts believe Panetta -- a former chief of staff to President Bill Clinton -- has the experience and clout needed to brave the budget battle.
As chairman of the House Budget Committee, he was one of the Democratic House members who negotiated with President George H.W. Bush's White House chief of staff, John Sununu, to reach a 1990 budget agreement to cut the deficit.
The agreement led Bush to violate his "read my lips, no new taxes" pledge, which disappointed Republicans and helped Clinton win the presidency in 1992.
Petraeus, 58, is credited with pulling Iraq from the brink of civil war and has trumpeted battlefield successes in Afghanistan after a surge of 30,000 additional troops ordered in by Obama in late 2009.
"We're just starting to see some momentum, some shifts, and now we're swapping out the Afghanistan commander," said Rick "Ozzie" Nelson, an Afghanistan veteran and a fellow at the Center for Strategic and International Studies.
Petraeus will find a somewhat less optimistic view of the Afghan campaign from inside CIA headquarters, where analysts have advanced a more cautious outlook about the war in the face of rampant corruption and a still-resilient Taliban.
Before word of the reshuffle broke, some Washington insiders had said the White House wanted to find a high-profile position for Petraeus to ensure he would not be recruited by Republicans to challenge Obama next year, perhaps as a vice-presidential candidate.
Thursday's announcement is not expected to be Obama's final change to his national security team.
Obama is also expected to soon announce the successor to the top U.S. military officer, Admiral Mike Mullen, whose term as chairman of the Joint Chiefs of Staff expires at the end of September.
The presumptive candidate to replace him had long been General James Cartwright. But the failure of the White House to announce a nomination for Mullen's job raised questions about whether Obama was ready to commit to a decision just yet.
(Additional reporting by Alister Bull, David Alexander, Mark Hosenball, David Morgan and Missy Ryan; Editing by Laura MacInnis)