President Bush says 2006 was a difficult time for U.S. troops in Iraq and the Iraqi people.
He says 2007 will entail more sacrifice, as insurgents and extremists seem to derail Iraq's young democractically-elected government and force an American pull-out.
"We enter this new year clear-eyed about the challenges in Iraq, and equally clear about our purpose. Our goal remains a free and democratic Iraq that can govern itself, defend itself and sustain itself and an ally in this war on terror."
During a news conference, the president said the enemy remains merciless and violent. He said he is working with others to come up with a revised strategy to meet the challenge and ensure victory.
"We can be smarter about how we deploy manpower and resources. We can ask more of our Iraqi partners and we will.
One thing we cannot do is give up on the hundreds of millions of moms and dads across the Middle East that want the hope and opportunity for their children that terrorists and extremists seek to deny them."
Mr. Bush said he has many options under consideration, including a possible surge in the number of U.S. troops in Iraq. He stressed he has made no decision on deployments in Iraq. But he reaffirmed his intention to seek an overall increase in the size of the Army and Marine Corps to better wage the global war on terrorism over the long term.
"I have asked Secretary of Defense Robert Gates to determine how such an increase could take place and report back to me as quickly as possible."
President Bush first revealed his intention to expand the military during an interview Tuesday with the Washington Post, in which he also provided an assessment of conditions in Iraq.
Two months ago, Mr. Bush said the United States was winning in Iraq. But during the session with the Washington Post, he said America is neither winning nor losing. At his news conference, he was asked if he has had a change of heart. The president said no, adding he has always felt America will win in the long-run.
"My comments yesterday reflected the fact that we are not succeeding nearly as fast as I wanted, as I said at the time, and that conditions are tough in Iraq - particularly in Baghdad."
The White House originally suggested that President Bush would unveil his revised strategy for Iraq before the end of December in a speech to the nation. That address has now been pushed back to sometime in January.