The plans are a state secret, so just where the Starbucks and Krispy Kreme stores will be is a mystery. But as the concrete hulks of a huge 21-building complex rise from the ashes of Saddam's Baghdad, Washington is sending a clear message to Iraqis: "We're here to stay."

It's being built in the Middle East, but George W's palace, as the locals have dubbed the new US embassy, is designed as a suburb of Washington.

An army of more than 3500 diplomatic and support staff will have their own sports centre, beauty parlour and swimming pool. Each of the six residential blocks will contain more than 600 apartments.

The prime 25-hectare site was a steal — it was a gift from the Iraqi Government. And if the five-metre-thick perimeter walls don't keep the locals at bay, then the built-in surface-to-air missile station should.

Guarded by a dozen gangly cranes, the site in the heart of the Green Zone is floodlit by night and is so removed from Iraqi reality that its entire construction force is foreign.

After almost four years, the Americans still can't turn on the lights for the Iraqis, but that won't be a problem for the embassy staffers. The same with the toilets — they will always flush on command. All services for the biggest embassy in the world will operate independently from the rattletrap utilities of the Iraqi capital.

Scheduled for completion next June, this is the only US reconstruction project in Iraq that is on track. Costing more than $US600 million ($A787 million), the fortress is bigger than the Vatican. It dwarfs the edifices of Saddam's wildest dreams and irritates the hell out of ordinary Iraqis.

On a recent visit to the real Baghdad — outside the Green Zone — a deepening sectarian separation was evident. Abu Zaman, a Shiite trucker who often updates The Age on life in the capital, had some personal news: "My daughter is upset because I blocked her wedding plans," he said. "He was a nice boy — rich and a good job — but he was a Sunni."

Making fake identity papers is a thriving business as Shiites and Sunnis attempt to blur their allegiances in a city where a name can be a death sentence. Men called Ali, Jaafar and Haider are almost certainly Shiites. Omar, Marwan and Khalid are Sunni names.

Shiite taxi driver Salwan al-Robian was unlucky. Earlier this month he used false papers to get through a Sunni checkpoint south of Baghdad. His companions told The Age that he gave himself away by invoking the name of Imam Ali, the Shiite saint, when he exclaimed his good fortune in surviving the roadblock. The Sunni gunman heard him and he was dragged off. His family recovered his body from the Tigris River a few days later

Sunni graffiti artists daub city walls with slogans such as "Shiite families out" and "Shiite dogs". Meanwhile, Shiite men roar with laughter at DVDs of comics mocking Sunnis.

In Baghdad, all roads lead to the morgue. This building to the north of the city comes from the pages of Dante.

It reveals the unvarnished truth about this deepening conflict. The body count rises steadily: more than 1800 mutilated corpses were trucked in from across the capital in July, a significant increase on the June toll of almost 1600. Across the country, almost 3200 Iraqis died violent deaths in June.

Coping with this flood of suicide-bombing and mass-murder victims is an impossible task for morgue staff. In the stifling summer, the police try to get out before sunrise to gather corpses from the killers' favourite dumping spots before the broiling heat of the day.

At the morgue, the bodies are divided along sectarian lines. The viciousness of the killings is sickening. Sunni victims of Shiite violence usually have holes drilled in their heads and joints and are found near the Shiite slums of Sadr City. Shiite victims of Sunni violence are often shot in the head or decapitated and usually they are dragged from the tepid waters of the Tigris.

Up to 200 bodies are delivered to the morgue each day. Sometimes there is the dignity of a body bag, but often body parts are delivered in banana boxes discarded at city bazaars. The Iraqi Government threatens the morgue staff with reprisals if they reveal information to reporters because the statistics are such devastating indicators of the Government's — and the United States' — failure. But one of the doctors agreed to talk to The Age as long as his name was not published. "It just gets worse, especially in this heat," he said.

"The bodies have been in the sun for so long that they fall apart in our hands, just like that. It's a nightmare. At home I can't say anything about it to my family. And how can we believe it'll get any better? We don't have enough doctors to do the autopsies and we're getting more and more bodies every day."

After almost four years of trying to build Washington's democracy beachhead in the Middle East, US defence officials now concede that the violence in Iraq is at its worst — in terms of body count, public support and the ease with which Sunni insurgents and Shiite militias exploit gaps in the American forces.

At most critical points the Americans have misread the social, tribal, political and military landscape and they have wrong-footed themselves by denying evolving realities that were all too apparent.

Distrust of Washington in all of the Iraqi factions has robbed the US of what it believed was an easily won regional trump card: control of Baghdad. Iraq is a democracy in name only. The elected Parliament doesn't function and, even though they mouth support for the niceties of the democratic process, it is hard not to conclude that Iraqi leaders have more faith in achieving their goals by letting the violence run than by taking part in any US-managed national dialogue.

The dynamic has changed. Sunnis who campaigned for US forces to leave Iraq now insist they remain here to protect the Sunnis because the Shiite majority has a taste for blood.

Shiites who welcomed the Americans now declare the US to be an enemy bent on robbing them of their long-held dream of controlling the country.

It's remarkable that George Bush has reportedly waited until now to vent his frustration at the failure of the Iraqis "to appreciate the sacrifice the US has made in Iraq". Ironically, about the same time as the August 14 White House meeting at which the President wondered aloud about the ability of yet another Iraqi government to turn the tide of violence, a Baghdad factory owner was mimicking the American leader for the benefit of The Age: "We give them Pepsi, the internet and mobile phones and they're still not happy. What more do they want?"

The combined forces of the US and the Iraqi Government number more than 400,000, but the country remains a lawless jungle. The Americans say they kill or capture more than 500 insurgents a week and they are defusing twice as many roadside bombs now as they were in January. But Iraqi and other agencies estimate that the death toll since the March 2003 invasion stands at 50,000 or more — the proportional equivalent of about 570,000 Americans.

In a country trying to rebuild itself, there is another disturbing development: more than 40 per cent of its professional classes have fled since the invasion. That includes an estimated 12,000 doctors.

The US Committee for Refugees and Immigrants estimates that close to 900,000 Iraqis have fled since 2003. Iraqi Airways has more than doubled flights to Damascus, bus services on the treacherous desert route to Jordan have gone from two to 50 a day, and taxi fares to Amman have increased from $US200 to $US750.

As statistics cry failure on so many fronts, Washington's stated plan for US forces in Iraq to "stand down as the new Iraqi forces stand up" is being shredded daily, along with the lives of innocent civilians. Much of the terror on the streets of Baghdad is organised by private militias that have infiltrated the Iraqi security forces.

These militias are operated by the key parties in Prime Minister Nuri al-Maliki's administration — his government would fall without the political support of one of the worst offenders, the radical Shiite cleric Muqtada al-Sadr and his Mahdi Army.

In Basra, deep in the south, there is little Sunni insurgency activity. But there is much violence as Shiite militias and local warlords fight for turf and British and American officers accuse neighbouring Iran (Shiite) and Saudi Arabia (Sunni) of arming the factions.

The country's second-biggest city becomes more Islamicised by the day — music and

liquor shops have been bombed out of business, women are made to wear headscarves and board games are being outlawed.

Whatever the Americans have done in Iraq has usually been too little too late.

The June death in a US bombing raid of Abu Musab al-Zarqawi, the Sunni insurgency leader and al-Qaeda point man in Iraq, was a victory — but his absence from the battlefield has failed to staunch the blood.

Zarqawi's stated objective was to foment unstoppable sectarian war.

In a sense, his work was done with the February bombing of a Shiite shrine at Samarra, north of Baghdad.

Unlike Mr Bush, Zarqawi could go to his grave rightly claiming: "Mission accomplished."

The two sides are dug in for the long haul. On one side, Sunni insurgency cells that now show great unity and common purpose have defeated a determined US counterinsurgency push to divide them.

On the other side, the Shiites use the resources of the US-trained and funded Iraqi security forces. A senior figure in Sadr's Mahdi Army told The Age: "We can get anything we need. We are a professional force … and after the victory for Hezbollah in Lebanon we feel stronger and more powerful because we have seen what a Shiite force can achieve.

"We will fight the Sunni till they have a clean heart towards Shiites. But we have to fight the American too, because they are with the Sunni against us."

Copyright © 2006. The Age Company Ltd.

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