The Iraqi parliament, pushed to the brink of a midnight deadline, gave negotiators an extra seven days on Monday to complete a draft constitution after weeks of intensive talks failed to bridge sectarian and ethnic rifts.
"I applaud the heroic efforts of Iraqi negotiators and appreciate their work to resolve remaining issues through
continued negotiation and dialogue," Bush said.
"Their efforts are a tribute to democracy and an example that difficult problems can be solved peacefully through debate, negotiation, and compromise," he added.
With Americans increasingly questioning Bush's Iraq policy, the delay is seen as a blow to efforts by US diplomats.
The US had pressed negotiators to meet the original 15 August deadline in completing the constitution, seen as a key step towards democracy.
US Secretary of State Condoleezza Rice predicted Iraqis would finalise the draft by the new deadline.
"We are witnessing democracy at work in Iraq," she said. "They have achieved a lot and they have generated considerable momentum toward the completion of their constitution."
Washington has increasingly argued that establishing democracy is a key to defeating Iraqi fighters because it would show the different ethnic groups they had a stake in Iraq's political future and did not need to resort to violence to achieve their goals.
Some analysts say the US has
been pushing too hard for a draft
At previous milestones in the political process, such as the handover of sovereignty and elections for a transitional government, Washington had similarly expressed hope supporters would be drawn away from the armed confrontations.
But violence continues to rage in the country.
Shia, Sunni and Kurdish leaders now have an extra week to agree on the extent regions can have autonomy from Baghdad and how they will share oil and resources.
If they fail, parliament will face a dissolution crisis and the prospect of new elections in an atmosphere poisoned by sectarian and ethnic strife.
If a constitution is hammered out, by law it should go to a referendum in October and a full-term parliament would be elected by December.
Rice remained upbeat about negotiations, saying: "We are confident that they will complete this process and continue on the path toward elections for a permanent government at the end of the year."
But US experts on Iraq warned on Monday that too much American pressure could backfire and undermine the Iraqi leadership's credibility.
Some US-based Iraq analysts disagreed with the Bush administration's interpretation of the delay in concluding Iraq's constitution draft, and criticised the US for piling too much pressure on all sides to reach agreement and said it had made Iraqi politicians' jobs more difficult.
"Their efforts are a tribute to democracy and an example that difficult problems can be solved peacefully through debate, negotiation, and compromise"
US President George Bush
"Clearly the deadline is not working as there are still such big issues outstanding and putting pressure on them to meet the timetable is probably causing more division among the Iraqis than consensus," said Iraq expert David Phillips of the Council on Foreign Relations.
Middle East specialist Shibley Telhami said he thought the US was playing too big a role in helping draft the constitution and that posed a credibility problem for the current Iraqi leaders.
"The US ambassador there is very visible in his meetings over the constitution. There is the impression that the United States is driving this, and that is not a good thing," said Telhami of the Brookings Institution.
From the Iraqi point of view, he said there were some benefits to not meeting the original 15 August deadline as it gave them some flexibility and boosted their credibility.