If it ever comes to court it should be one of the more interesting libel cases of the decade. The Iraqi National Intelligence Service is threatening to sue Ahmed Chalabi, the Iraqi politician, for asking who pays for it.

"It is somewhat curious," says Mr Chalabi, "that the intelligence service of a country which is sovereign - that no one really knows who is funding it."

In fact there are very few Iraqis who do not believe they have a very clear idea of who funds Iraq's secret police. Its director is General Mohammed Abdullah Shahwani, who once led a failed coup against Saddam Hussein, and was handpicked by the CIA to run the new security organisation soon after the invasion of 2003. He is believed to have been answering to them ever since.

The history of the Iraqi intelligence service is important because it shows the real distribution of power in Iraq rather than the spurious picture presented by President Bush. It explains why so many Iraqis are suspicious of the security accord, or Status of Forces Agreement, that the White House has been pushing the Iraqi prime minister Nouri al-Malki to sign. It reveals the real political landscape where President-elect Barack Obama will soon have to find his bearings.

For all Mr Bush's pious declarations about respecting Iraqi sovereignty, General Shahwani is reported to work primarily for American intelligence. The intelligence service is "not working for the Iraqi government - it's working for the CIA," Hadi al-Ameri, a powerful Shia lawmaker, was quoted as saying three years ago. "I prefer to call it the American Intelligence of Iraq, not the Iraqi Intelligence Service."

It seems that not much has changed since then. The intelligence service does now appear in the Iraqi budget as being in receipt of $150 million, though this seems somewhat measly given the extent of its operations, which includes running paramilitary units. One of its main missions is to spy on Iranians on behalf of the US, employing much the same cadre of intelligence officers who carried out this task for Saddam Hussein.

Fear of covert US control is one of the reasons why the Iraqi government has been so intent on insisting that all US forces be out of Iraq by the end of 2011. The latest draft of the security accord has dropped mention of US troops staying behind for training, or making the US withdrawal conditional on improved security in Iraq being maintained.

The American position in Iraq has always been undermined by the fear that, whatever they claimed to be doing in Iraq, their long-term objective was to rule the country. The overthrow of Saddam Hussein, one of the world's more disastrous leaders, was generally popular in Iraq. But the occupation was disliked by the majority of Iraqis from the beginning.

The result of this is that over the last five and a half years America has always been politically weak in Iraq. Put simply, it has very few friends among Iraqis outside Kurdistan. The Shia and Sunni communities have, for their own ends, made tactical alliances with the occupier, but never wanted a permanent presence. Once Iraqis and their neighbours no longer fear that the US intends to rule Iraq directly or indirectly through local nominees then America's position becomes much stronger.

This should be good news for Barack Obama. He wants US combat troops out in 16 months. The Iraqi government largely agrees. But if the presidential election proved anything it was that neither candidate knew much about what was happening Iraq.

John McCain claimed absurdly that the US was on the verge of victory, and during his visits to the Green Zone his staffers annoyed US embassy officials by requesting them not to wear helmets and body armour when standing next the candidate. McCain's people feared this might undermine in the eyes of American television viewers their candidate's claim that US prospects in Iraq were rosier than had been reported.

The key to the US conducting an orderly retreat from Iraq is that this retreat should be real and the US should not try to control essential Iraqi state institutions like the intelligence service. It is also crucial that Obama seriously negotiate with the Iranians. So long as the Iranian leadership thinks that Iraq might be the launching pad for an attack on Iran it will never be in Iranian interests for Iraq to be stabilised.

The same is true of Syria. A problem for Obama is that McCain's quite false claim that America's position in Iraq has become stronger has been largely accepted by the US media so any compromise with Iran can be portrayed as a sell-out.