By Richard Cowan

WASHINGTON, May 7 (Reuters) - The second-ranking Republican in the U.S. Senate said on Monday there must be "significant changes" in Iraq well before the end of the year, signaling President George W. Bush could face new challenges on war policy from members of his own party.

Sen. Trent Lott of Mississippi, who holds the No. 2 leadership position in his party, made his comments a day after similar remarks by another powerful Republican lawmaker, House Leader John Boehner of Ohio.

"I do think this fall we've got to see some significant changes in the situation on the ground, in Baghdad and other surrounding areas ... or else," Lott told reporters.

Lott would not elaborate on possible consequences.

Boehner also discussed the need for progress in an appearance on the "Fox News Sunday" television program.

"By the time we get to September, October, (Republican) members are going to want to know how well this is working and if it isn't, what's Plan B," he said.

"Yes, generally I agree with him," Lott said of Boehner on Monday.

Gen. David Petraeus, the U.S. commander in Iraq, is expected to deliver a progress report in September.

Senate Majority Leader Harry Reid, a Nevada Democrat, jumped on Boehner's remarks, saying in a Senate speech: "We're pleased to see House Republican leaders adopt our view this commitment in Iraq must not be open-ended."

Reid said it was "somewhat disturbing" that "the Republican leader is willing to allow the troops to stay in Iraq with a failing strategy until he and his colleagues decide it is time to part with the president."

WAR BUDGET BATTLE

Last week, Bush vetoed Democrats' war-funding bill because it contained deadlines for beginning a withdrawal of U.S. troops. Republicans, who almost unanimously voted against the withdrawal plan, accused Democrats of providing the enemies in Iraq with deadlines for a U.S. surrender.

With Bush's approval rating at an all-time low of 28 percent, according to a Newsweek magazine poll released on Saturday, Democrats are promising to keep the pressure on Republicans to support winding down the 4-year-old war.

Negotiations on a new $100 billion war-funding measure were continuing. Democrats hope to present Bush with a bill by the end of May.

Some House Democrats are pushing a plan that would immediately provide about half of the new combat funds Bush requested. The remainder would be released within a few months, but only after Congress voted to do so.

That idea has received a cool reception in the Senate, where many Democrats and Republicans want to provide enough war money for the rest of the fiscal year, which ends Sept. 30.

"I think that's a uniquely bad idea. There are only a few more months left of this fiscal year anyway," Senate Minority Leader Mitch McConnell, a Kentucky Republican, said in a conference call with reporters.

With time so limited, there was no reason to take the funding bill and "chop it up into bits," he said.

Congress will soon begin considering next fiscal year's military spending bill, which anti-war Democrats also are targeting for troop withdrawal language.

One idea that could unite Democrats, who control Congress, and minority-party Republicans, is placing "benchmarks" into this year's war-funding bill that would measure progress in Iraq toward stabilizing and securing the country.

But there does not appear to be agreement over whether to include consequences if progress is not being made.

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