(Updates with White House comment, New York Times report)

By Tabassum Zakaria

CRAWFORD, Texas, Aug 18 (Reuters) - President George W. Bush said on Saturday that the Iraqi government still had "many important measures" to resolve in order to meet political goals, just weeks before a report on his Iraq strategy is presented to Congress.

An assessment by Gen. David Petraeus, the top U.S. commander in Iraq, and Ryan Crocker, U.S. ambassador to Iraq, due Sept. 15 will look at the impact of Bush's decision to send thousands of additional U.S. troops to Baghdad and Anbar province this year.

It is expected to show a mixed picture of military progress but shortcomings on political reconciliation.

In his weekly radio address, Bush said political progress was being made at the local level in restive Anbar province, with a mayor and municipal council now functioning in almost every town. "The rule of law is being restored," he said.

"Unfortunately, political progress at the national level has not matched the pace of progress at the local level," Bush said.

"The Iraqi government in Baghdad has many important measures left to address, such as reforming the de-Baathification laws, organizing provincial elections, and passing a law to formalize the sharing of oil revenues," he said.

But political progress at the local level should have a positive impact at the national level, Bush said.

"In a democracy, over time national politics reflects local realities," he said. "And as reconciliation occurs in local communities across Iraq, it will help create the conditions for reconciliation in Baghdad as well."

Iraq's political leaders met for the first time in two months on Saturday in an attempt to revive national reconciliation efforts and repair the fractured unity government.

Democrats are pressing for U.S. troops to be pulled out of Iraq as soon as possible. Bush has steadfastly opposed setting a deadline for withdrawing forces, saying such decisions should be made by military commanders and not politicians.

TROOP REDUCTIONS?

The New York Times on Saturday quoted unnamed administration and military officials saying the White House planned to use the September Iraq report to outline a plan for gradual troop reductions starting next year, but that would fall far short of the drawdown sought by war opponents in Congress.

White House spokesman Gordon Johndroe said the generals and Crocker had not yet made their recommendations to the president ahead of the September report.

"They have not made their recommendations and therefore, of course, the president has made no decisions yet on the way ahead. So we'll just have to see," Johndroe told reporters in Texas where Bush is on vacation at his ranch.

"The decisions that are made are going to be based on the conditions on the ground," he said.

"We have seen the security situation improving, we have seen some bottom up political reconciliation taking place, we are seeing Iraqi leaders in Baghdad sit down and meet ... those are all encouraging signs. There is clearly more to be done," Johndroe said.

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