Gates, who arrived in Baghdad on Wednesday on an unannounced visit, said he would report his findings and impressions to President George W. Bush as early as the weekend.

"This is a very difficult situation," Gates said at the U.S. military headquarters in Iraq, adding, "But I believe, based on what I have heard and seen both from American commanders and the Iraqis, that things are moving in a positive direction."

During his first visit to Iraq after took post as the defense secretary last Monday, Gates held talks with Iraqi leaders, including Prime Minister Nuri al-Maliki on means to improving security in Iraq.

The U.S. defense secretary said the embattled Iraqi government had put forward concrete plans to restore security in the war-shattered country without elaboration.

"We've talked with the Iraqis about the best path forward in terms of improving the security situation here in Baghdad. And I think we have a broad strategic agreement between the Iraqi military, and the Iraqi government and our military," he said.

But Gates didn't say whether sending more U.S. troops to Iraq was part of the plan.

President Bush said on Wednesday that a permanent increase of the size of the U.S. military is necessary, raising concerns that Washington may send more soldiers to Iraq.

"I'm inclined to believe that we need to increase the permanent size of both the United States Army and the United States Marines," he said.

Bush also acknowledged that insurgents in Iraq had made some "success" and thwarted U.S. efforts at "establishing security and stability throughout the country" in 2006.

Currently, the U.S. troops in Iraq amounted to nearly 130,000 and more than 2,960 of them have been killed since the U.S.-led war broke out in March 2003, according to the Pentagon figures.