Reuters) – Major foreign policy challenges await U.S. president-elect Barack Obama in the Middle East. Here are some of the intertwined issues that Democrat Barack Obama will inherit from President George W. Bush.

IRAQ

Five years after the U.S.-led invasion, Iraq remains very volatile despite improved security. Higher U.S. troop levels in 2007-08 were one factor in reducing the violence. Others include a U.S.-supported shift by former Sunni insurgents who have turned on their old al Qaeda allies; a ceasefire by the Shi’ite Mehdi Army of anti-U.S. cleric Moqtada al-Sadr; and ethnic and sectarian cleansing that has redrawn Baghdad’s communal map.

A recent forced exodus of 1,500 Christian families in north Iraq has underlined the fragility of the security gains.

At stake now is a vital security pact negotiated with the Shi’ite-led government allowing U.S. troops to stay three more years. Iraq wants changes to the deal, which would replace a U.N. Security Council mandate that expires at the end of 2008.

Obama says it should be possible to cut the U.S. troop presence and favours a timetable to remove all combat troops by mid-2010. But he might find it hard to keep his pledge to withdraw troops by mid-2010 if Iraq slides back into bloody chaos.

That remains possible if, for example, dominant Shi’ite factions do not share power and resources fairly with Sunni Arabs and others; if autonomy-minded Kurds overreach, especially in Kirkuk; or if local conflicts run out of control.

IRAN

Iran’s nuclear ambitions, energy resources and regional influence, greatly expanded by U.S. wars that toppled its foes in Afghanistan and Iraq, bear on vital U.S. national interests.

Past attempts to isolate and undermine the Islamic Republic have failed. Its hardline leaders are firmly in power. U.N. and U.S. sanctions have not deterred its pursuit of nuclear power — which Iran says it wants only for electricity, not bombs.

Bush kept military options “on the table” but in the past year has focused mostly on international diplomacy to tighten sanctions. The global financial crisis appears to have reduced chances for a U.S. or Israeli pre-emptive attack any time soon, given the turmoil and oil supply disruptions this could entail.

Obama has offered to meet Iranian President Mahmoud Ahmadinejad — who himself faces an election in June. Obama promises to use force if Iran attacks Israel or another ally, but says shunning Tehran and other U.S. foes has not worked.

Could a U.S.-Iranian dialogue — tentatively begun under Bush, but limited to Iraq — erode 29 years of mutual hostility and build on shared interests to achieve a new modus vivendi?

The nuclear issue and Iranian-Israeli enmity constitute huge obstacles, but a U.S. opening to Iran, if reciprocated, could foster cooperation in stabilising Iraq and Afghanistan, easing sectarian conflict in the region, combating al Qaeda and developing Iranian oil and gas assets, some analysts say.

ISRAELI-PALESTINIAN ISSUE

Almost a year after U.S. President George W. Bush relaunched Israeli-Palestinian peace talks at Annapolis, the initiative has lived up to gloomy predictions many people made at the time.

Sporadic talks between Israeli Prime Minister Ehud Olmert and Palestinian President Mahmoud Abbas have failed to bridge rifts over borders, refugees and the status of Jerusalem.

Israel’s continued settlement expansion in the West Bank, along with a thickening network of settler roads, checkpoints and barriers, has battered prospects for a two-state solution.

And Palestinian divisions have put any deal out of sight for now. Hamas Islamists seized the Gaza Strip in June 2007, leaving Abbas’s Fatah faction in charge of the West Bank — a split worsened by punitive U.S.-led efforts to isolate Hamas.

Israel also has leadership uncertainties, facing an election next year after Kadima leader Tzipi Livni failed to form a coalition to replace that led by Olmert, who quit in September.

Obama says he will get stuck into Middle East peacemaking, rather than emulate Bush’s hands-off approach, but has not proposed any policy shift to rescue the two-state solution from oblivion.

Olmert, now a lame-duck premier, offered a possible cue when he told an interviewer last month that Israel should withdraw from nearly all territory captured in the 1967 Middle East war in return for peace with the Palestinians and Syria.

SYRIA

A U.S. raid inside Syria against an alleged smuggler of insurgents into Iraq last month showed the Bush administration remains hostile to Damascus, even though U.S. efforts to isolate it internationally have been dented — French President Nicolas Sarkozy and European Union foreign policy chief Javier Solana have both visited Syria in the last two months.

Syria remains an ally of Iran and anti-Israeli groups like Hezbollah in Lebanon and Hamas, but its indirect talks with Israel over the past year show interest in a peace deal that would require solid, sustained U.S. support to pull off.

In another setback to Bush’s policy, Damascus has gained ground in Lebanon, where Hezbollah and its allies now have veto power in a unity government. Syria’s move to forge diplomatic ties with Lebanon meets a major Western demand and is an apparent sign of Syrian President Bashar al-Assad’s confidence.

Syria, unmoved by U.S. sanctions, has often signalled its desire for good relations with Washington, a prize for Damascus perhaps second only to recovering the Golan Heights from Israel.

Potential obstacles to a future U.S.-Syrian rapprochement include misgivings by Saudi Arabia, a U.S. ally, which feels that Syria has done too little to merit such a reward.

And a U.N. tribunal set up after the 2005 assassination of Lebanon’s ex-premier Rafik al-Hariri could seek to prosecute Syrian officials, setting the stage for a diplomatic standoff.

Obama, unlike McCain, has backed dialogue with Syria, saying this could help stabilise the region and better secure Israel.

ONES TO WATCH

Other potential Middle Eastern crises include:

* Power transition in Egypt, where President Hosni Mubarak, 80, has ruled for 27 years, with no obvious successor.

* Succession in oil giant Saudi Arabia, where King Abdullah is thought to be 85 and Crown Prince Sultan 81.

* Flare-up of Sunni-Shi’ite or other sectarian tensions in countries with religiously mixed populations such as Iraq, Lebanon, Syria, Iran, Saudi Arabia and Bahrain.

* Instability in Lebanon, a weak state where Shi’ite Hezbollah and its allies, backed by Iran and Syria, are opposed by a Sunni-led coalition that has Saudi and Western support.

* Instability in Yemen, a poor but strategically located Red Sea country whose many troubles include al Qaeda activity.