Things are better …

That’s the cautious word I’m hearing out of Baghdad and other towns from Iraqi friends and colleagues.

People are afraid to hope too much or think ahead. But they can move about their own neighborhoods – where American troops now patrol – go out at night, and even visit a restaurant.

Iraqis I know who fled their homes are still afraid to go back. Violence is down to early 2006 levels – before the most horrendous wave of sectarian killings that followed a bombing by Sunni militants of a holy Shiite shrine. But car bombs still explode, civilians still die violent deaths, and some provinces remain troubled.

So Iraqis ask – as do U.S. civilian and military officials – whether these gains can be consolidated and expanded. Or will they crumble in 2008 when U.S. troops are set to draw down sharply because the Army can’t sustain surge levels any more?

The answer depends on whether these security gains encourage Iraqi political progress. Gen. David Petraeus has made clear that the higher troop levels were meant to create breathing room for Iraq’s Sunni and Shiite leaders to reach a modus vivendi.

Senior U.S. commanders are frustrated that Iraq’s Shiite-led government won’t reach out to former Sunni foes. The United States is now paying many former Sunni insurgents to protect their local areas. But the Iraqi government fears these insurgents will morph into new Sunni militias, who will fight the government once the Americans draw down.

The lack of political reconciliation at the top leaves many wondering whether tactical military gains can be turned into strategic progress.

“This change has been dramatic, but we have to be real cautious in evaluating it and reacting to it,” says a senior State Department official. “That which emerged quickly could recede quickly.”

And yet there is room for a smidgen of hope. (In the Middle East, it never pays to go overboard with optimism.) Where does such hope lie?

It lies in the fact that Iraqis themselves took the first steps to quash the violence even before the surge started. Sunni tribal leaders in Anbar province turned against al-Qaida in Iraq, which they once supported, because it overreached, killing their sons and seizing their daughters.

Similarly, the militia of the radical Shiite cleric Muqtada al-Sadr was forced to stand down, for now, after it had alienated Shiite public opinion by killing civilians in the shrine town of Karbala. The surge has piggybacked on this growing hostility toward radical militias.

The decrease in violence allows Iraqis to envision another future, one that seemed impossible at the height of the killing. That creates a psychological window for former neighbors to reconnect. Tribal leaders from predominantly Sunni and Shiite provinces are beginning to meet; Prime Minister Nouri al-Maliki is at least venturing out to Sunni areas.

The next few months – before U.S. troops draw down – will provide a crucial test of whether Iraqi leaders are capable of building on these gains.

One sign will be whether Maliki’s government is willing to spread economic-largesse money to the provinces. U.S. officials hope that he will see the wisdom of creating jobs for former Sunni insurgents, and putting other ex-militants on the police payroll.

Another sign will be whether the central government paves the way for provincial elections. Devolving more funds, and political power, to the provinces, could bring new leaders into the political system and out of the militia business. Provided, that is, that the election system is changed so it no longer encourages voting by sect.

One final sign of crucial importance: Whether U.S. and Iraqi officials can convince Iraq’s neighbors to help rather than hinder Shiites and Sunnis to reconnect. Shiite Iran and Sunni Arab Gulf states can fuel Iraq’s sectarian war, or encourage their coreligionists to live in peace.

U.S. Ambassador Ryan Crocker has been urging Arab countries to set up embassies in Baghdad and to urge Iraqi Sunnis to take part in the new system. As for Iran, it says it wants a peaceful Iraq, but has yet to act that way.

Remnants of al-Qaida in Iraq wait in the wings. Radical Shiite militias retain their arms. The Maliki government is weak and inept. “I, for one, am making no declarations of victory,” says the senior State Department officials.

But the current security lull at least provides a base on which to build something sustainable before U.S. troops start drawing down. This Iraqi opening deserves a chance.