The Western troop presence in Iraq is to be scaled down under a plan to defuse regional tensions over America's killing of Iranian general Qassim Soleimani.
Rather than bowing to Iranian demands for a pull-out of all coalition forces, diplomats are working towards a compromise deal whereby the foreign troop presence will simply be reduced.
They hope that will satisfy demands from pro-Iranian factions in Iraq's parliament, which voted two weeks ago for foreign troops to leave after Mr Soleimani's death in a US drone strike on January 3.
The plan follows concerns among Western military chiefs that an immediate pull-out would hamper the ongoing mop-up operations against Islamic State remnants in Iraq.
Iraq's Kurdish and Sunni Muslim politicians also voiced fears that a complete withdrawal by Washington would give Tehran even greater sway over the Shia Muslim bloc that dominates the parliament.
One Western official told The Telegraph: “Within the Shia bloc there are two views: Iranian-backed groups want the US and coalition forces to leave immediately, but pragmatists want a smaller coalition presence, which is where discussions are taking place.”
While pro-Iranian factions in the Iraqi government are still pushing for a complete withdrawal, it is thought that a significant reduction in numbers would be acceptable as a conciliatory gesture.
There are currently around 5,200 US troops in Iraq, along with roughly 4,000 from other Western nations, including nearly 500 British soldiers.
While some are still involved in active operations against Islamic State remnants, most are now engaged in training the Iraqi army.
With the fight against Isis now effectively over, some of the troops would likely have left in the near future anyway. Under the new arrangements, those who remain will occupy fewer bases and end all non-essential duties.
An exact time line for the plan is as yet unclear. Iraq's caretaker prime minister, Adel Abdul-Mahdi, has said that any final decision should be made by his successor, who may not be appointed for months.
Privately, however, he is thought to favour the compromise plan.
While both Iran and the US have stepped back from all-out confrontation over Mr Soleimani's killing, diplomats have not yet ruled out the prospect of further bloodshed.
They are particularly worried about the pro-Iranian Shia militants in Iraq, who have threatened to mount their own attacks on US troops and other American targets.
The Western official said that the death of Mr Soleimani, who was killed alongside Abu Mahdi al-Muhandis, deputy leader of Iraq's main Shia militia umbrella group, the Popular Mobilisation Forces, meant the militias were now even more of a law unto themselves.
“While Iran and the US want to de-escalate, the unknown factor is the Shia militias, who are independent,” the official added.
“There is a concern that they could take matters into their own hands and start killing Americans. The problem is that since the death of Soleimani and Muhandis, nobody is quite sure who is controlling them.”
A potential flashpoint looms this Friday, when hardline Shia cleric Moqtada al Sadr plans to organise a “million man” march through Baghdad to demand that the US presence ends.
There are fears that demonstrators could try to storm the US embassy again, as they did in late December, or attack anti-government protesters based in Baghdad's Tahrir Square, who have been demanding an end to Iranian influence in Iraq.