Supplies and medicine in strife-torn Baghdad's overcrowded hospitals have been siphoned off and sold elsewhere for profit because of corruption in the Iraqi Ministry of Health, according to a draft U.S. government report obtained by NBC News.

The report, written by U.S. advisers to Iraq's anti-corruption agency, analyzes corruption in 12 ministries and finds devastating and grim problems. "Corruption protected by senior members of the Iraqi government," the report said, "remains untouchable."

One potential problem is in the office of Prime Minister Nouri al-Maliki, according to the report. The report said that "the prime minister’s office has on a number of occasions intervened on cases involving political supporters."

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U.S. construction giant Bechtel National Inc. arrived in Iraq in 2003, on the heels of U.S. troops, with a fat contract awarded by the U.S. Agency for International Development to rebuild the country.

Then in 2004 the company won a second contract, worth a potential $1.8 billion. Wearing white construction helmets labeled "Bechtel," the company's construction supervisors oversaw work on hospitals, schools and bridges, and tried to get the water flowing and the electricity turned on.

A new federal audit released Wednesday, however, found that a big chunk of Bechtel's reconstruction work for USAID, the federal agency that issued the contract, was never achieved on the second contract. Auditors checked the 24 jobs Bechtel was supposed to complete.

"Ten did not achieve their original objectives," the auditors found. In another three projects, "we were either unable to determine what the original objectives were or the achievements were unclear."

The cost to American taxpayers for unfinished efforts was high: the U.S. government approved a total of $180 million dollars in payments for Bechtel’s ten allegedly unfinished projects. They include a $24 million water treatment plant in Baghdad's impoverished Sadr City, a $26 million children's hospital in Basra and a $4 million Baghdad landfill that was never built.

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Read this CNN article and see Bush lie, oversimplify, and continue to pretend the war in Iraq is part of the war on terror.

Bush defends Iraq war, details threat from al Qaeda

At least one intelligence analyst suggested a focus on al Qaeda in Iraq oversimplifies the problem there. Former acting CIA director and CNN national security adviser John McLaughlin said the situation is more complex.

"No question al Qaeda in Iraq is an important part of this conflict," McLaughlin said. "But to describe it in just those terms is to describe really a game of checkers when what we're dealing with here is a game of chess. Because we have many other facets to this conflict, including a civil war, including tensions between tribes, nationalists and so forth."

CNN's Michael Ware, who is based in Baghdad, said the fact that al Qaeda in Iraq is part of the broader terror network has never been in question. He called Bush's speech "an ancient history lesson."

"It makes one wonder why the president is hammering this point home when he glosses over the fact this war is creating more al Qaeda jihadis rather than reducing their number," Ware told CNN's Wolf Blitzer.

On 22 June the US military announced that its attack helicopters, armed with missiles, engaged and killed 17 al-Qaeda gunmen who had been trying to infiltrate the village of al-Khalis, north of Baquba, where operation "Arrowhead Ripper" had been under way for the previous three days.

The item was duly carried by international news agencies and received widespread coverage, including on the BBC News website.

But villagers in largely-Shia al-Khalis say that those who died had nothing to do with al-Qaeda. They say they were local village guards trying to protect the township from exactly the kind of attack by insurgents the US military says it foiled.

They say that of 16 guards, 11 were killed and five others injured - two of them seriously - when US helicopters fired rockets at them and then strafed them with heavy machinegun fire.

Minutes before the attack, they had been co-operating with an Iraqi police unit raiding a suspected insurgent hideout, the villagers said.

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