With Washington claiming its occupation will end on 30 June, diplomats were considering on Thursday how to get round serious sovereignty limitations.

Most pressing is the problematic status of the continued presence of 135,000 US troops. But other topics for discussion include spending oil revenues.

UN officials may agree to rubber stamp the continued presence of the Development Fund for Iraq, which receives money from oil and gas sales and is now run by the US-led occupation authority. 

Iraqis are "not in a position to fully exercise their power"

John Negroponte
new US ambassador to Iraq

The US insisting on its own board of monitors to remain in place as a move to reassure investors and aid donors that Iraq's oil and gas money was free of corruption.

Baghdad has exported nearly $8.6 billion in crude oil since last year's invasion of Iraq.

Viceroy or ambassador?

John Negroponte, the new US ambassador to Iraq and currently the chief US representative at the United Nations, said Iraqis will have full sovereignty, but "were not in a position to fully exercise their power".

Heading an embassy with 3000 employees, Negroponte may also end up with responsibility for Iraq's prisons.

A US military official said the 8000 prisoners in American custody would remain an occupation force responsibility.

"In the course of security and stability operations, you are going to continue to have to detain and hold people - security detainees," said the official, speaking on condition of anonymity in Washington.