The government formation stalemate in Iraq—well into its seventh month and counting—may at last be nearing an end. The next few weeks could seal a deal between rival electoral blocs that will produce the next national government.

Two scenarios with very different outcomes appear to be jockeying for rail position in the race to produce the next Prime Minister.

The first, apparently backed by the United States, would have Iyad Allawi of the Iraqiyya coalition assume the presidency, and Adel Abdel-Mahdi of the Islamic Supreme Council of Iraq (ISCI), a key component of the predominantly Shi’a Iraqi National Alliance, take the office of Prime Minister. The current President, Jalal Talabani, a Kurd, opened the door to this outcome by declaring recently that he would vacate the Presidency in exchange for a pledge by the central government to honor the terms of the Constitution’s Article 140. This requires a referendum on the future status of the oil-rich city of Kirkuk and surrounding areas. The Kurds believe that demographic changes since Saddam’s fall would be enough to ensure a vote in favor of incorporating the region into the Kurdistan Regional Government.

By contrast with its relative passivity since the March 7 election, during which time the United States steadfastly refused to facilitate negotiations over the shape of a new government, a sense of urgency has appeared to overtake American policymakers. The new Ambassador in Baghdad, Jim Jeffrey, has close ties to Iraqi political leaders and a solid acumen when it comes to the ins and outs of government-formation deal making. Under his leadership, the Embassy is reportedly shuttling papers and proposals back and forth between negotiators for Allawi and Abdel-Mahdi in hopes of cementing a deal between the two coalitions in short order.

While the US continues to publicly avoid the appearance of picking the next Iraqi leadership, this outcome would clearly be in the interest of the United States. Allawi, a tough former Ba’athist and secular Shi’ite, largely ran as a cross sectarian candidate and proved capable of attracting large numbers of Sunni voters to his coalition, giving his Iraqiyya the largest bloc in the parliament with 91 seats. During his time as Prime Minister under the old Iraqi Governing Council, he developed a reputation as an effective administrator and won the admiration of President Bush and other American policymakers. Abdel-Mahdi—ISCI’s long-standing prime minister in waiting—is a somewhat colorless technocrat and could be expected to focus more on doing an effective job than building a personal power base. (Although, given the nature of Iraqi politics and the history of the incumbent, such a course can never be ruled out).

The fly in this particular ointment is the obstinacy of current Prime Minister Nouri al-Maliki. He has given every indication that he has no intention of relinquishing power and seems likely to fight on to the end. A deal involving Allawi and Abdel-Mahdi ascending to power would be unacceptable to Maliki, especially given the strong personal rivalries between him and his foes. If an Allawi/Abdel-Mahdi deal is concluded, United States intervention at the highest levels would be required to persuade Maliki to step down, most probably by President Obama himself.

The other scenario, of course, is the “Iranian solution” (as one Iraqi prime ministerial hopeful described it to me): a forced marriage between the Shi’ite religious parties and the continuation of Prime Minister Maliki in office. While this particular scenario seemed to have faded over the last few weeks, it appears to have returned to the agenda. Press reporting from Baghdad indicates the Iraqi National Alliance has decided to abandon all coalition talks with other parties until the bloc (which formed a post-election alliance with Maliki’s State of Law coalition) comes up with a single nominee for the post of Prime Minister. Maliki is now believed to hold the edge over Abdel-Mahdi in this intra-coalition race.

The government formation process is now shaping up to be a contest between the United States and Iran in a much more direct way. If the Allawi/Abdel-Mahdi scenario is to prevail, the US may have to step beyond the role of facilitator and take up the role of persuader. This will be an uncomfortable role for the Obama Administration to play, but play it it must if it is to lay the foundation for a productive strategic relationship with Iraq in the future and set the conditions for stability and reintegration of Iraq into the Arab fold. This is particularly urgent given that the clock is ticking down to a full US withdrawal at the end of next year. Iran, which up to now has been rather less successful in promoting its agenda in Iraq than it hoped, could be dealt a setback if its plans for the next Iraqi government fail to materialize.

If the “Iranian solution” emerges as the winner, however, US relations with Iraq and Iraq’s with the rest of the region will be considerably more problematic. Prospects for a follow-on US-Iraq security agreement after 2011 (which would permit some American troops to remain for training, counterterrorism support, providing security for the US embassy and its offices, and other missions) would dim. Iraq’s gradual reintegration into the Arab world would slow, if not cease, were Maliki to remain at the helm; most Arab leaders see him (rather unfairly) as an Iranian proxy. And if Shi’a solidarity remains the main motivating force for the next government, there is little chance of significant progress, not only on the highly divisive Kirkuk issue, but on others that will determine whether Iraq can move forward as a unified state, such as petrochemical revenue sharing and constitutional reforms.

Time is growing short. Well-informed observers expect a government deal to be concluded by the end of October. But reports of deals or near-deals among the various personalities and parties have come thick and fast since last March and evaporated just as quickly, lending a great deal of fluidity to the political scene and providing Washington considerable room for maneuver. The United States must take advantage and step up its efforts soon to persuade Iraqis to agree to a power-sharing arrangement that will reflect the will of Iraq’s voters and offer a more hopeful basis for future progress.

Assertions and opinions in this Policy Insight are solely those of the above-mentioned author(s) and do not necessarily reflect the views of the Middle East Institute, which expressly does not take positions on Middle East policy.