A US-Iraqi security agreement spelling out how American troops and contractors operate was supposed to be in place over the summer, but the thorniest issues remain unsettled and neither side is budging.

Time is running out. The deal must be finished and ratified by Iraq's parliament before Dec. 31, when the UN mandate authorizing the US military mission expires. Otherwise, there will be no legal basis for the US presence in Iraq.

For President Bush, some of the pressure to get a fast deal has faded since Iraq is no longer a dominant issue in the presidential campaign.

For the Iraqi leadership, however, political crosscurrents have grown more complicated because of upcoming provincial elections and strong Iranian opposition to any security agreement.

Deputy Secretary of State )ohn Negroponte and Iraqi Foreign

Minister Hoshyar Zebari sought to put a favourable spin on the talks, telling reporters at a joint press conference in Baghdad this week that the two sides were close to a deal.

"There is a mutual desire to sign this agreement because it is necessary for Iraq's development, to safeguard oil resources, to enable Iraqi forces to handle security and to complete our national independence," President Jalal Talabani told state television Wednesday.

But negotiations were supposed to have been wrapped up in July. With the clock ticking, the two sides still cannot agree on two key issues legal jurisdiction over US troops and contractors and a timeline for a US withdrawal.

The Iraqis insist on the right to try American troops accused of crimes at least when alleged offences are committed off US bases. The Iraqis want the last American soldiers to leave Iraq by the end of 2011 unless the Baghdad government asks them to stay.

US negotiators want the withdrawal tied to the security situation rather than dates. Both sides describe their positions as "red lines."

"The Americans show no interest in committing themselves to any deadline or timetable and they think that such process depends on the situation on the ground," Kurdish lawmaker Mahmoud Othman said.

Privately, Pentagon officials closely involved in the talks say they are not optimistic that a final deal will be clinched anytime soon. A top US official said there is even less reason for optimism now than in recent months.

The officials spoke on condition of anonymity to characterise the closed-door talks.

Iraqi officials familiar with the talks are no less pessimistic.

"Negotiations are focusing on a very hard stage," al-Maliki aide Sami al-Askari told The Associated' Press. "I think it will be rejected by parliament as it stands now."