US President George W Bush won a battle over nearly $100 billion to fund the Iraq war after Democrats in Congress abandoned efforts to withdraw troops for now but pledged to try again in July.
It appeared the Democratic-run Congress and the Republican White House agreed for the first time to include conditions encouraging Baghdad to make better progress toward quelling violence or risk losing around $1.3 billion in US reconstruction aid.
Mr Bush could waive the provision, however.
Congress wants to deliver by week's end the $100 billion to fund the wars in Iraq and Afghanistan through September.
With the Iraq funding deal, Democrats said the first minimum wage increase in a decade, a high priority for them, would be among a raft of domestic social provisions attached to the deal.
However, all the details have not been finalised and negotiations between the White House and Congress were continuing.
House liberals were disappointed by the emerging deal, and House of Representatives Speaker Nancy Pelosi, a California Democrat who signed off on the plan, said she opposed the Iraq portion of it.
Ms Pelosi said she was "not likely to vote for something that does not have a timetable" for withdrawing troops from the war that has killed at least 3,420 US soldiers and wounded more than 34,000.
But enough Republicans are expected to join some Democrats in backing the Iraq measure to ensure passage if it is put to a vote later this week, as planned by Ms Pelosi.