The agreement was announced on Saturday.
"By June 30, 2004, the new transitional administration will be recognised by the coalition, and will assume full sovereign powers for governing Iraq. The [US occupation administration] will dissolve," said the text of the agreement, signed between US administrator in Iraq, Paul Bremer and the current Governing Council leader, Jalal Talabani.
Talabani told a news conference that the US-anointed Governing Council, formed last July, would draft before 28 February 2004 a "fundamental law" that would "include procedures for the election" of the transitional assembly.
The agreement outlines steps that should be taken ahead of holding elections for a new government before the end of 2005.
It says the Governing Council "will have no formal role in selecting members of the (transitional) assembly, and will dissolve upon the establishment and recognition of the transitional administration" by 30 June.
An Iraqi political analyst told Aljazeera the idea of electing a transitional government was not new.
"It was basically an Iraqi idea, calling for electing a national transitional government by all people of Iraq", said Nathim al-Jasur.
He said "the US-appointed governing council does not represent all Iraqis, as it includes 16 parties and some independent characters".
"The US initiative comes as a result of the US political and military failure in Iraq"
Iraqi political analyst
Al-Jasur stressed that "a 250-member National Assembly, including all Iraqi social and political parties, should be formed to represent all people of Iraq".
This National Assembly, he added, would then elect an Iraqi transitional government that would handle the Iraqi social, economic and security affairs and formulate the new Iraqi constitution.
"The US initiative comes as a result of the US political and military failure in Iraq".
Al-Jasur said the current political situation in the country "proves that the United States has failed to achieve any of its goals in Iraq during these seven months of occupation".