* Sharp fall in U.S. troop deaths in Iraq in July
* Major operation in Diyala province enters second day
* Third month U.S. deaths in Afghanistan higher than Iraq
BAGHDAD, July 30 (Reuters) - The number of U.S. soldiers killed in combat in Iraq has dropped sharply in July and the monthly total is likely to be the lowest since the U.S.-led invasion of the country in 2003.
Five U.S. soldiers have been killed in combat in Iraq so far in July compared to 66 in the same month last year, according to the independent website icasualties.org, which keeps records of U.S. military losses in the conflict.
The drop underscores the dramatic fall in violence in Iraq to lows not seen since early 2004.
Seeking to build on those gains, tens of thousands of Iraqi soldiers and police launched a major operation against Sunni Islamist al Qaeda in northeastern Diyala province on Tuesday.
Al Qaeda has sought to stoke tensions in Diyala, its only haven close to Baghdad. A Reuters witness said forces had deployed throughout the provincial capital Baquba.
Security forces imposed a vehicle curfew and searched homes for weapons and wanted militants. Most shops were closed.
The U.S. combat death toll in July is down from 23 in June and 15 in May, the icasualties.org data showed.
The fall comes as Iraqi forces have taken the lead in major security operations. The U.S. military this month also withdrew the last of five extra combat brigades that were sent to Iraq last year to drag the country back from civil war.
Deployment of the additional U.S. troops last year, a decision by Sunni Arab tribal leaders to turn against al Qaeda and a ceasefire imposed by Shi'ite cleric Moqtada al-Sadr on his Mehdi Army are all factors credited with the reduced violence.
Overall in July, nine U.S. soldiers have died in Iraq. The other four were from non-hostile incidents such as accidents. The Pentagon also announced this month that it had identified the remains of two U.S. soldiers kidnapped in May 2007.
By comparison, 16 American soldiers have been killed in combat in Afghanistan so far this month. U.S. deaths there in May and June were also higher than in Iraq. There are 144,000 U.S. troops in Iraq and 36,000 in Afghanistan.
Around 4,120 U.S. soldiers have died in Iraq since the invasion. The number in Afghanistan stands at 561 since the Taliban government was toppled in 2001.
MAJOR U.S. ELECTION ISSUES
The Iraq and Afghanistan wars are key issues in the U.S. presidential election campaign.
Democratic candidate Barack Obama wants to shift the focus of U.S. military efforts from Iraq to Afghanistan.
He has pledged to withdraw U.S. combat troops from Iraq within 16 months of taking office in January, if he is elected.
That would free up resources for Afghanistan, where the Taliban and al Qaeda are resurgent.
His Republican rival, John McCain, also says more soldiers need to be sent to Afghanistan.
In an interview with Reuters on Monday, General David Petraeus, the current Commander of U.S. forces in Iraq, expressed concern about the situation in Afghanistan.
Petraeus will take over later this year as commander of the military headquarters responsible for U.S. operations in the Middle East as well as Afghanistan and Pakistan.
"There clearly have been worrisome trends in Afghanistan in recent months in particular," Petraeus said.
Asked if the U.S. military had the right split of military resources between Afghanistan and Iraq, Petraeus said: "Obviously it's in the back of my mind already as I look forward, the relative commitment of resources."
Despite the overall decline in violence in Iraq, four suicide bombers killed around 60 people on Monday, underscoring the fragility of the security gains. (Editing by Dean Yates and Samia Nakhoul)
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