Instead of setting schedules for pulling US troops, it appeared the Democratic-run Congress and the Republican White House agreed for the first time to include conditions prodding Baghdad to make better progress toward quelling violence or risk losing around US$1.3 billion in US reconstruction aid.

With the Iraq funding deal, Democrats said the first minimum wage increase in a decade, a high priority for them, would be included. Congress already has approved tax breaks for small businesses to go along with the wage hike.

Democrats also will try to attach about US$20 billion in domestic initiatives - from farm aid and better health care for veterans, to health insurance for poor children and money to continue rebuilding states hit by hurricanes in 2005. Negotiations between the White House and Congress were continuing on details.

House of Representatives Speaker Nancy Pelosi said she was "not likely to vote for something that does not have a timetable" for withdrawing troops from the war that has killed at least 3,420 US soldiers and wounded more than 34,000. Meanwhile, White House spokesman Tony Snow said the negotiated measure would provide "the funding and flexibility the forces need."

President Bush vetoed Congress' first version of this year's emergency war funds bill because it set an October 1 deadline for starting to pull most of the 147,000 soldiers out of Iraq.

Reuters