President Bush plans to keep U.S. troop levels in Iraq near their current level through the end of the year.
Bush says he will return about 8,000 troops to the U.S. by February.
The president says "additional reductions will be possible in the first half of 2009" if security in Iraq keeps improving.
He made the announcement Tuesday in a speech to the National Defense University in Washington.
Bush says violence in Iraq is at its lowest point since the spring of 2004. And he says normal life is returning to Iraqi communities and political reconciliation is moving forward. But he cautions that progress is still fragile and could be reversed.
The president also outlines what he says will be a "quiet surge" of additional American forces in Afghanistan, bringing the U.S. presence there to nearly 31,000, compared with about 146,000 in Iraq.