A controversial "surge" in US military operations has cut the death toll in Iraq, but prospects for peace between rival political blocs remain a distant dream going into a New Year of the conflict.
If 2006 saw a bloody insurgency escalate into a vicious sectarian war, 2007 saw the bloodletting peak in January and then recede each month on policy shifts by Washington and changes on the ground.
In February, a year after sectarian strife erupted with the bombing of a Shiite shrine in Samarra, US President George W. Bush changed his Iraq strategy. He dispatched an extra 28,500 soldiers in a bid to quell bloodshed that has mounted since the March 2003 invasion.
The reinforcements were sent in the face of stiff opposition from the Democratic-dominated US Congress, as a last ditch effort by Bush to restore some stability in Iraq ahead of the 2008 US presidential elections.
The bitter pattern of sectarian killings and counter-killings began falling once the "surge" troops became fully operational by June, although the first signs of change had already come from the province of Anbar.
Sunni Arabs who once fought the Americans side by side with al Qaeda militants have slowly turned against the militant group. By September, al Qaeda was pushed out of Anbar, the success spawning many other anti-Qaeda fronts, known as Al-Sahwa, or "the Awakening", across Iraq.
The US military said that by December nearly 80,000 Sunni Arabs, as well as Shiites, had signed on to the Awakening movements and neighbourhood watch-type groups.
Critics accuse Washington of "buying" peace with the former rebels, who are paid an average 300 dollars a month, but military commanders say they are merely offering jobs to "patriots." The rapid turnaround saw Osama bin Laden make a call for unity among the insurgent groups, urging them to "gather under one banner so that justice can be served."
On December 4, an al Qaeda front group announced that it had launched a new campaign of bombing targetting the Iraqi army and Awakening members, and a spate of attacks followed. Bush hopes that he can end his time in the White House with violence at least under control rather than escalating. He announced a military drawdown of 21,500 combat troops by mid-2008, leaving around 130,000 troops in Iraq.
Washington received a further boost when hard-line Shiite leader Moqtada al-Sadr ordered a six-month freeze on the activities of his Mahdi Army militia in August.
Sadr's order came after allegations his fighters had been involved in a firefight in the Shiite shrine city of Karbala which killed 52 people. The combined effect of the anti-Qaeda front, the suspension of the Mahdi militia and the presence of extra US troops led to a drop in violence for the first time since the invasion.
In November, Iraq reported the deaths of 606 people compared to 1,992 in January and the lowest toll in 21 months. The relative peace did not come cheaply and 2007 has been the deadliest year for the US military since the invasion, with around 900 soldiers killed so far.
Iraq also saw its deadliest attack this year. On August 14, four truck bombs killed more than 400 people from the Yazidi community in two northern villages. But some 10,000 internally displaced Iraqis and 40,000 refugees in neighbouring countries were encouraged enough to return to their homes, according to Iraqi officials. The UN refugee agency has warned that security is still too bad for a mass return.
And Iraqi politicians failed to take advantage of the ease in violence to iron out their bitter differences. The controversial oil and de-Baathification laws, which Washington says are "benchmarks" to measure national reconciliation, are stalled in the bitterly divided parliament. A bill which aims to return middle-ranking members of former dictator Saddam Hussein's Baath party into public life, at least came up for discussion but was met with angry protests from Shiite lawmakers.
The oil bill has not even had a first reading in parliament, a year after it was drafted. It would open up Iraq's long state-dominated oil and gas sector to foreign investment and stipulate that receipts be shared equally among Iraq's 18 provinces.
Political tensions were aggravated by the death sentences against three Saddam aides, including his most infamous hatchet man, Ali Hassan al-Majid, or "Chemical Ali". Prime Minister Nuri al-Maliki initially postponed the executions because they were scheduled to take place during the holy month of Ramadan.
He now wants them to go ahead but is being opposed by President Jalal Talabani and Sunni Vice President Tareq al-Hashemi. Maliki, who enters the new year with his cabinet still short-handed after walkouts by Sunnis and hard-line Shiites, also failed to realise his own prediction of taking security control of all of Iraq's 18 provinces by mid-2007. Only nine provinces are currently under Iraqi control.
The year also saw a stand-off between Washington and Baghdad over the role of private security contractors when staff of Blackwater, a company that provides security to US diplomats in Baghdad, killed 17 Iraqis in Baghdad. There is now a protracted legal row over whether the guards can be prosecuted under Iraqi law.
Washington and Baghdad agreed in November on a crucial military deal that is expected to keep American forces in Iraq beyond 2008, when a UN mandate ends and troops from other nations pull out. Washington has also slightly softened its stance towards Iran following assurances by the Islamic republic that it will help curb bloodshed in its neighbouring country.