(Repeating to fix typo in headline)

By Andrea Shalal-Esa

WASHINGTON, Sept 9 (Reuters) - A perceived U.S. failure in Iraq would likely spur increased terrorism, a matter of grave strategic concern given Iran's efforts to destabilize the region, a former top U.S. military commander said on Sunday.

"If we are perceived to have failed, I think you're going to see terrorism expand and I think the stability of the Gulf region is going to be brought into question," said retired Marine Gen. James Jones, the former top U.S. commander in Europe who headed an independent commission on Iraq.

Jones' views on Iraq came a day before the top U.S. commander in Iraq, Gen. David Petraeus, and U.S. Ambassador to Iraq Ryan Crocker testify to Congress about a troop buildup that U.S. President George W. Bush says is making progress but which critics call a failure.

Bush, under mounting pressure to change course in Iraq, plans a prime time speech on the U.S. role in Iraq on Thursday and could offer a limited troop drawdown.

But he is unlikely to unveil a major shift in strategy in the 4-year-old war that has claimed the lives of more than 3,700 U.S. troops and tens of thousands of Iraqis.

Jones told NBC's "Meet the Press" that stabilizing Iraq was a strategic goal for the United States, particularly given what he described as Iran's growing influence.

"Iran is a major player in attempting to destabilize and split Iraq right now. These are the strategic goals that we have to keep our eye on," Jones said.

On Saturday, Bush urged Democratic lawmakers demanding a timetable for troop withdrawal to listen to Petraeus and Crocker before "jumping to any conclusions."

But Delaware Sen. Joe Biden, chairman of the Senate Foreign Relations Committee and a Democratic presidential candidate, said the troop buildup had clearly failed to reduce sectarian violence or improve security in Iraq.

BIDEN SEES FAILURE

"The truth of the matter is that the American administration's policy and the surge are a failure," Biden told NBC.

Democratic Sen. John Kerry of Massachusetts warned against misreading any "tactical successes" that might be reported by Petraeus and Crocker, noting the Iraqi government had met only three of 18 of its own benchmarks for achieving political reconciliation and stabilizing the country.

"None of us should be fooled -- not the American people, not you in the media, not us in Congress," Kerry said on ABC's "This Week." "I think there is sort of an illusion being put forward, and you can take a tactical success and misread it as we did in Vietnam."

Petraeus last week said coalition forces have made uneven progress in establishing security, but admitted the Iraqi government's progress toward national reconciliation, a key justification for increased troops levels, was disappointing.

The Bush administration boosted troop levels -- now at 168,000 --- as part of a strategy to improve security and allow Iraqi politicians time to advance legislation seen by Washington as critical to long-term stability.

Sen. John McCain of Arizona, a Republican presidential candidate, insisted the troop buildup was starting to work.

"This new strategy has only been in effect for a relatively short period of time," McCain said on ABC. "I want us out too. But I want us out with honor."

The U.S. Institute of Peace, a Washington think tank, on Sunday recommending cutting U.S. troop levels to no more than half the current level within three years and removing all units within five years.

"Only when the Iraqis and their neighbors perceive the real prospect of U.S. withdrawal will they feel the need to take on greater responsibility," it said in a new report.

(Additional reporting by Nancy Waitz)

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