Despite the progress, there was more bloodshed with at least 36 people killed across the country in car bombs, mortar attacks and drive-by shootings. Police also found 29 bodies.

"This is such a huge, significant event that's about to occur tomorrow," U.S. military spokesman Maj. Gen. William Caldwell said of the shift in the Iraqi command. "If you go back and you map out significant events that have occurred in this government's formation in taking control of the country, tomorrow is gigantic."

The highly anticipated ceremony, which will put the prime minister in direct control of the military, comes five days after it was originally scheduled. The government abruptly called off the original ceremony at the last minute.

The U.S. and the Iraqis did not publicly reveal many details of the disagreement, other than to say it was more procedural than substantive.

Caldwell said the handover was so important, it could not be rushed into.

"If there's even a question, if there's even a slightest misunderstanding, you would absolutely want to get that thoroughly resolved," he said.

Following the fall of Baghdad in April 2003, the U.S. disbanded what was left of the defeated Iraqi army. The U.S.-led coalition has been training and equipping the new Iraqi military, hoping it soon will be in a position to take over security for the entire country and allow foreign troops to return home.

But it is still unclear how fast this can be done.

"It's the prime minister's decision how rapidly he wants to move along with assuming control," Caldwell said. In Thursday's ceremony, the prime minister will take control of Iraq's small naval and air forces, and the 8th Iraqi Army Division.

"They can move as rapidly thereafter as they want. I know, conceptually, they've talked about perhaps two divisions a month," Caldwell said.

The 8th Division was recently engaged in a fierce, 12-hour battle with Shiite militia in the southern city of Diwaniyah which left more than 20 soldiers and 50 militiamen dead.

Days before the battle, the Division's commander, Brig. Gen. Othman al-Farhoud, told The Associated Press that while his forces were capable of controlling security, they still needed support from the U.S.-led coalition.

He said there was still a need for coalition air support, medical assistance and military storage facilities.

"In my opinion, it will take time," al-Farhoud said when asked how long it would take before his division was completely self-sufficient.

Politicians have been optimistic.

Iraqi President Jalal Talabani predicted in a Tuesday meeting with visiting British Foreign Secretary Margaret Beckett that fighting in Iraq will have abated by the end of 2007, and that Iraqi forces will be able to handle any remaining violence.

Yet the killing continued.

On Wednesday, two bombs targeting an Iraqi army patrol exploded in northern Baghdad within minutes at a busy intersection, killing at least nine people and wounding 39, police said. Two of the dead and eight of the wounded were Iraqi soldiers, police said.

In northeastern Baghdad, gunmen opened fire on a procession of pilgrims heading to the Shiite holy city of Karbala, 50 miles south of Baghdad, killing one person and wounding two.

Tens of thousands are expected in Karbala Saturday to observe Shaaban, a religious celebration. Many of the pilgrims travel to the city on foot. State television said a vehicle curfew had been imposed in Karbala from Wednesday night until the end of the celebration.

Mortar attacks in residential areas in Diyala province, north of Baghdad, killed three people: a 2-year-old child in the Khan Bani Saad area and two people in Muqdadiyah, 60 miles north of Baghdad, police said.

Meanwhile, a dispute over Iraq's flag also showed no signs of abating.

Massoud Barzani, president of the Kurdish region, angered many in Baghdad with his decision last week to replace the Iraqi national flag with the Kurdish banner. The Kurdish region has been gaining more autonomy since the 2003 U.S.-led invasion, a worrying development to many Iraqi leaders, especially Sunni Arabs.

Although Iraq's first interim Governing Council after the fall of Saddam Hussein decided to change the country's flag, no official version has been adopted.

Lawmakers wrangled over the issue in parliament Wednesday, but parliament speaker Mahmoud al-Mashhadani insisted the dispute was drawing attention away from the country's true problems.

"This issue of the flag is not suitable now because we have a security problem and deficiencies in services and we are in the phase of national reconciliation," he said.

He suggested the solution was to adopt a new flag as quickly as possible.

Meanwhile, the U.S. military said the arrest of al-Qaida in Iraq's second in command took place in June and was the most significant blow to the terror network since the death of al-Qaida in Iraq leader Abu Musab al-Zarqawi.

Caldwell said Hamed Jumaa Farid al-Saeedi, also known as Abu Humam or Abu Rana, was captured on June 19, not a few days ago as the Iraqi government had initially announced.