(Changes dateline, previous Montebello, adds White House spokesman, speech excerpts)

By Tabassum Zakaria

OTTAWA, Aug 21 (Reuters) - U.S. President George W. Bush said on Tuesday it was up to the Iraqi people whether to replace Prime Minister Nuri al-Maliki's government and urged him to do more to broker peace between the warring sides.

Bush did not offer a direct endorsement of Maliki and acknowledged the difficulties in achieving political goals in Iraq. The U.S. ambassador to Iraq, Ryan Crocker, earlier on Tuesday said that progress was "extremely disappointing."

"I think there's a certain level of frustration with the leadership in general, inability to ... come together to get, for example, an oil revenue law passed or provincial elections," Bush told reporters after meetings with the leaders of Canada and Mexico.

The United States increased the number of troops in Iraq to 162,000 to try to quell unrelenting violence so that the Iraqi government can move ahead with those political goals.

The chairman of the U.S. Senate Armed Services Committee, Carl Levin, just back from a visit to Iraq, on Monday urged that Maliki's government be voted out of power because it has been unable to reach compromises on key policy issues.

However, Bush argued that some progress was being made in Iraq, pointing to oil revenue being distributed to various provinces despite the lack of a new law as well as the passage of some 60 pieces of legislation by the Iraqi parliament.

URGING COMPROMISE

"If the government doesn't ... respond to the demands of the people, they will replace the government," Bush said. "That's up to the Iraqis to make that decision, not American politicians."

After the remarks, White House spokesman Gordon Johndroe told reporters traveling with Bush that the president did have confidence in Maliki and his government but was urging them to reach a compromise over outstanding issues quickly.

"President Bush believes that Prime Minister Maliki and the Presidency Council are going to be able to come together and reach some sort of political accommodation," Johndroe said. "He certainly urges them to do so every time he speaks with them."

Crocker and the commander of U.S. forces in Iraq, Gen. David Petraeus, will report to Bush and Congress on progress in Iraq early next month.

Bush on Wednesday will address a veterans' group in Kansas City and plans to cite progress in Iraq and say that soldiers question whether Congress will "pull the rug out from under them just as they are gaining momentum and changing the dynamic on the ground in Iraq.

"My answer is clear: We will support our troops, we will support our commanders, and we will give them everything they need to succeed," Bush plans to say according to speech excerpts released by the White House on Tuesday. (Additional reporting by Caren Bohan.)

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