The proposal, by veteran GOP Sens. John Warner of Virginia and Richard Lugar of Indiana, came as the Pentagon conceded a decreasing number of Iraqi battalions are able to operate on their own.

"American military and diplomatic strategy in Iraq must adjust to the reality that sectarian factionalism is not likely to abate anytime soon and probably cannot be controlled from the top," the Warner-Lugar proposal states.

Sen. John Warner, R-Va., meets reporters on Capitol Hill in Washington in this Nov. 8, 2006 file photo. Warner and Sen. Richard Lugar, R-Ind., cast aside President Bush's pleas for patience on Iraq Friday, July 13, 2007 and proposed legislation demanding a new strategy by mid-October to restrict the mission of U.S. troops. [AP]

Democrats and the White House were dismissive of the proposal. However, it could attract significant support from GOP colleagues who are frustrated by Iraq but reluctant to break ranks with their party or force the hand of a wartime president.

The two senators are considered the GOP's foremost national security experts. Warner was the longtime chairman of the Armed Services Committee until stepping down last year, while Lugar is the top Republican on the Foreign Relations Committee.

The legislation also draws heavily from existing GOP-backed proposals, increasing the chances of attracting support.

It would require Bush to submit by Oct. 16 a plan to "transition US combat forces from policing the civil strife or sectarian violence in Iraq" to a narrow set of missions: protecting Iraqi borders, targeting terrorists, protecting US assets and training Iraqi forces.

The bill suggests the plan be ready for implementation by next year.

Senate Majority Leader Harry Reid balked at the proposal because it would not require Bush to implement the strategy. He said he prefers legislation the Senate will vote on next week that would order combat troops to be out of Iraq by next spring.

Warner and Lugar "put a lot of faith in the president -- that he will voluntarily change course and voluntarily begin to reduce the large US combat footprint in Iraq," said Reid spokesman Jim Manley in a statement.

Earlier on Friday, Reid dismissed as too soft a separate proposal supported by several Republicans and Democrats that would require Bush to adopt the recommendations of the bipartisan Iraq Study Group, intended to pave the way for a 2008 withdrawal.

"If you give this president a choice, he will stay hunkered down in Iraq for years to come," Reid, D-Nev., said.

Bush spokesman Tony Fratto said the White House would review the Warner-Lugar measure. "But we believe the new way forward strategy -- which became fully operational less than a month ago -- deserves the time to succeed," he said.

In addition to requiring a new military strategy, the legislation calls on Bush to seek renewed authorization for the war, which Congress gave him in 2002. Many members contend that the authorization -- which led to the US invasion of Iraq in 2003 -- was limited to approval of deposing Saddam Hussein and searching for weapons of mass destruction.

Through top aides and in private meetings and phone calls, Bush has repeatedly asked Congress to hold off on demanding a change in the course of the war until September, when the top US commander, Gen. David Petraeus, and US Ambassador Ryan Crocker, deliver a fresh assessment of progress.

But many Republicans, most of whom will face voters next year, say they are tired of the war, which is in its fifth year and has killed more than 3,600 troops.

In a report to Congress this week, the White House conceded that not enough progress was being made in training Iraqi security forces -- the linchpin in Bush's exit strategy for US troops.

At a news conference Friday, the chairman of the Joint Chiefs of Staff, Gen. Peter Pace, said the number of battle-ready Iraqi battalions able to fight independently has dropped from 10 to six in recent months despite an increase in US training efforts.

Pace said the readiness of the Iraqi fighting units was not an issue to be "overly concerned" about because the problem was partly attributable to losses in the field.

"As units operate in the field, they have casualties, they consume vehicles and equipment," Pace said.

In another development Friday, Bush's top spokesman appeared resigned to the fact that the Iraqi parliament is going to take August off, even though it has just eight weeks to show progress on military, political and other benchmarks designated by the United States.

However, Tony Snow said, "Let's also see what happens because quite often when parliaments do not meet, they are also continuing meetings on the side. And there will be progress, I'm sure on a number of fronts."

The Warner-Lugar proposal is the first major legislative challenge to Bush's Iraq policy endorsed by the two senators. Lugar and Warner have previously expressed grave doubts about Bush's decision to send 30,000 extra troops to Iraq. But both remain reluctant to back binding legislation that would manage deployments.

"I have great respect for the constitutional separation of powers between the executive and legislative branches and the authorities granted to each in that document," Warner said in a statement Friday.