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NEW YORK - On July 15, U.S. military officials handed Iraq's interior minister a large, gold-colored key to mark the transfer of Camp Cropper, the last prison in Iraq under American control. "Now there is some rule of law," one Iraqi official gushed at the ceremony.

But just five days later, four prisoners who were leaders of one of Iraq's most violent insurgent groups escaped. Iraqi officials suspect that the newly installed warden drove the detainees - members of an Al Qaeda offshoot called the Islamic State of Iraq - out of Camp Cropper. Naturally, this brazen prison break embarrassed American and Iraqi officials. It also illustrated how political paralysis in Iraq reinforces a dangerous security vacuum. Eager to meet an Aug. 31 deadline to withdraw U.S. combat troops, American military officials handed over institutions while the Iraqi system remained in disarray.

Today, nearly eight months after the March 7 parliamentary elections, Iraqi leaders still cannot agree on who should lead the country. Both Prime Minister Nouri al-Maliki and his main rival, Ayad Allawi, the former premier whose coalition won the elections by two seats, insist that they have the right to form the next government. As Iraq's Sunni, Shiite and Kurdish communities argue over sharing power and the country's oil wealth, violence is on the rise yet again. On Tuesday, a series of bombings in mainly Shiite areas of Baghdad killed at least 64 people and injured several hundred. It was another sign that militants loyal to Al Qaeda are seeking to exploit the current paralysis to destabilize Iraq.

The United States wants the political stalemate to end quickly and the Iraqis to begin rebuilding state institutions so that U.S. President Barack Obama can make good on his promise to withdraw the 50,000 remaining U.S. troops by the end of next year. But some of Iraq's neighbors, especially Iran, do not want to see a strong central state emerge in Baghdad. If the Iranian regime cannot fully dominate Iraq, then it wants a weak and fractured Iraqi government. Iran wants to ensure that Iraq never again poses the threat it did when Saddam Hussein invaded Iran in 1980.

The release of nearly 400,000 secret U.S. military field reports by WikiLeaks sheds new light on how destructive the American invasion of Iraq has been - to Iraqis and the region as a whole. The documents emphasize how the Iraq conflict has unleashed a new wave of sectarian hatred and upset the Persian Gulf's strategic balance, helping Iran emerge as the dominant regional power.

Since 2004, the political struggle between the United States and Iran to influence events in Iraq has spread onto the battlefield. The Iranians have provided weapons, training and sanctuary to several Iraqi militias that in some cases have acted as Iranian proxies, according to the U.S. documents revealed by WikiLeaks.

And the Iranian regime has also gained the upper hand in the latest political maneuvering. Tehran has brought together two of its staunchest Shiite allies: Maliki and the anti-American cleric Muqtada al-Sadr. On Oct. 1, the day that Iraq surpassed the world record - 207 days - for the time between a parliamentary election and the formation of a government, Sadr's bloc finally backed Maliki in his bid to remain in office. Although Maliki still has not secured a majority in the 325-seat parliament, Sadr's support is likely to help the premier in his effort to reach a deal with other factions, especially the Kurds.

But Sadr's political ascendance threatens to stoke sectarian tensions: his followers were responsible for some of the worst atrocities against Sunnis during Iraq's recent civil war. Sadr's militia, the Mahdi Army, unleashed death squads that assassinated Sunnis and drove them out of Shiite neighborhoods. The Mahdi Army is among several Iraqi Shiite militias that received extensive training and weapons from Iran, according to U.S. documents in the WikiLeaks archive. These weapons included rockets, magnetic bombs, high-powered rifles and surface-to-air missiles that were used to attack U.S. helicopters.

By joining the Shiite alliance, Maliki has been trying to outmaneuver his rival Allawi, whose secular coalition attracted strong support among Iraq's Sunni minority. Such backdoor tactics threaten to once again unleash the sectarian warfare that shattered Iraq. Washington and its Arab allies prefer Allawi as the next leader of Iraq, while Iran wants to ensure that Maliki or one of its other Shiite allies remains in power.

Meanwhile, the list of problems facing the new government continues to grow. Iraqis are furious that seven years after the U.S. invasion - and the investment of $5 billion - the country still lacks adequate electricity. Many towns and cities in Iraq receive only four to six hours a day of electricity. As temperatures soared over 120 degrees in June, Iraqis smashed government offices in Basra and other southern cities.

So far, Iraqi leaders have failed to come up with a plan to protect and provide jobs to tens of thousands of former Sunni fighters who were wooed away from the insurgency. They are increasingly frustrated at the Shiite-led government and many feel betrayed by the U.S. military. More broadly, Iraq's parliament has been unable to agree on new laws for sharing oil revenues and negotiating contracts with foreign oil companies.

With so much at stake, it seems unlikely that the Iraqi political class is capable of putting aside its ethnic and sectarian squabbles to govern effectively. Already, there are fears that the current stalemate over choosing a prime minister and forming a government might require international intervention - a deal brokered by Washington and the United Nations.

But U.S. officials have little sway over Iraqi groups that are now more concerned about currying favor with regional powers, especially Iran. While the Iranian regime suppressed internal dissent last year over the tainted reelection of President Mahmoud Ahmadinejad, it also worked to maintain its influence over Iraq's Shiite factions. By surviving the challenge from the "Green Revolution," the Iranian regime has become stronger and more emboldened to engage in adventurism abroad.

Since the March 7 elections, the United States has been sidelined in the political machinations of Iraq. With remaining U.S. troops set to withdraw by the end of 2011, the Obama administration has little leverage to force Iraqi leaders to reach a compromise. And Iran is waiting patiently to get its way.