WASHINGTON (AP) – Acknowledging deepening frustration over Iraq, President George W. Bush says he is considering an increase in U.S. forces and is telling Americans to expect more painful U.S. losses next year.

In Baghdad, new U.S. Defense Secretary Robert Gates said Wednesday that a sudden increase in troop numbers was an obvious option.

Bush was unusually candid Wednesday at a year-end news conference about U.S. setbacks and dashed hopes in the war, which has claimed the lives of more than 2,950 U.S. military members and tens of thousands of Iraqis. He said, “2006 was a difficult year for our troops and the Iraqi people. We began the year with optimism,” but that faded as extremists fomented sectarian violence between Sunnis and Shiites. “And over the course of the year they had success,” the president acknowledged. “Their success hurt our efforts to help the Iraqis rebuild their country, it set back reconciliation, it kept Iraq’s unity government and our coalition from establishing security and stability throughout the country.”

Democrats are about to claim control of Congress, and Americans are overwhelmingly unhappy about Bush’s handling of the war, so the president is at a turning point as he searches for new approaches. Administration officials said Bush’s remarks were intended to brace a war-weary nation for another tough year in Iraq.

The heavy cost of the war also came into focus as the Defense Department circulated a request for an additional $99.7 billion (¤75.5 billion) to pay for the fighting in Iraq and Afghanistan. If accepted by Bush and approved by Congress, the proposal would boost this year’s budget for those wars to about $170 billion (¤128.75 billion). So far, four years of war in Iraq have cost about $350 billion (¤265.1 billion).

On just his third day as secretary, Gates made an unannounced visit to Baghdad to review options with senior American commanders. He said no decisions have been made. “We discussed the obvious things,” Gates told reporters. “We discussed the possibility of a surge and the potential for what it might accomplish.”

Gates said he was only beginning to determine how to reshape U.S. war policy. He also said he would confer with top Iraqi officials about what America’s role should be in Iraq. Bush is awaiting Gates’ recommendations before making a speech in January announcing changes in strategy and tactics.

The shift in policy is likely to be accompanied by a shuffle of top American generals in Iraq. Army Gen. John P. Abizaid, commander of U.S. forces from the Horn of Africa to Central Asia and Pakistan, has submitted plans to go ahead with a retirement that is months overdue. The top U.S. commander in Iraq, Gen. George Casey, has indicated he may not stay much longer than the end of this year.

Abizaid and Casey have opposed sending more troops to Iraq, and their departures could make sending them easier for Bush. One option calls for sending five or more additional combat brigades, roughly 20,000 or more troops.

Apart from any increase in Iraq, Bush said the military’s overall size should be increased to relieve the heavy strain on U.S. troops, reversing the previous position of his administration during Donald Rumsfeld’s Pentagon tenure. Bush also said a troop surge in Iraq would have to be for a specific mission. His remarks appeared intended to allay doubts voiced by prominent military officials such as Abizaid, who worry that sending more troops to Iraq would be ineffective and put more demands on an already-stretched U.S. military. “There’s got to be a specific mission that can be accomplished with the addition of more troops before, you know, I agree on that strategy,” the president said.

The Bush administration says many questions have to be answered about adding troops: What would be their purpose, what would they do, how long would they stay and what is the Iraqi government’s view on the rules of engagement for more U.S. forces? Also, would the additional troops serve in training positions, in combat, to help civilian forces or for a combination of those roles? “I’m not going to make predictions about what 2007 will look like in Iraq except that it’s going to require difficult choices and additional sacrifices because the enemy is merciless and violent,” the president said.

Bush was unwavering about U.S. goals for Iraq. “Victory in Iraq is achievable,” he said. “It hadn’t happened nearly as quickly as I hoped it would have. … “But I also don’t believe most Americans want us just to get out now,” the president said. “A lot of Americans understand the consequences of defeat. Retreat would embolden radicals. It would hurt the credibility of the United States.”

Bush stepped back from his confident assertion two months ago that “absolutely, we’re winning” in Iraq. Wednesday, he said, “We’re not winning. We’re not losing.” The president said he changed his formulation because “we’re not succeeding nearly as fast as I wanted … and that the conditions are tough in Iraq, particularly in Baghdad.” He said his original remark, on Oct. 25, was made in the spirit that “I believe that we’re going to win. I believe that and, by the way, if I didn’t think that, I wouldn’t have our troops there.”