Ryan Crocker, the US ambassador to Pakistan, will replace Khalilzad in Baghdad. Crocker is a fluent Arabic speaker who has already served as US ambassador to Syria, Kuwait, Lebanon and, since November 2004, Pakistan.
Khalilzad has served as the US ambassador in Iraq for the past 18 months.
Both appointments must be confirmed by the US senate, though they are not expected to encounter stiff resistance from Democrats.
Bush failed to secure confirmation for the re-appointment of Bolton to the UN after the Democrats took charge of congress in January.
In his speech scheduled for Wednesday at 9pm EST (02:00 GMT), Bush is expected to recommend sending up to 20,000 more US troops to Baghdad.
Many of his proposals will contain funding that will have to be approved by the new Democratic US congress, which says sending more troops to Iraq is an escalation of the war and that it is time to start bringing forces home.
"Any request for additional troops is going to have to be accompanied by a very, very strong justification and in fact a detailed plan," on the purpose of the troop increase"
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Kay Bailey Hutchison, a Republican politician, said that Bush will call for sending more American soldiers to Iraq to calm two troubled areas - Baghdad, where sectarian violence rages daily, and the western Anbar province, a base of the Sunni uprising.
Bailey is one of about 30 US politicians who discussed Iraq with Bush at the White House on Monday. She said that the president did not offer specifics on how many extra US troops would be involved.
Gordon Smith, a Republican senator who also attended the talks, said: "It was clear to me that a decision has been made for a surge of, I suppose, 20,000 additional troops."
Smith said Bush had told him and several other senators that the plan for the additional troops had originated with Nuri al-Maliki, the Iraqi prime minister.
Bush's new plan is expected to include setting "benchmarks" for the Iraqi government aimed at easing sectarian violence and stabilising the country, besides despatching more troops.
It is also expected to contain a jobs programme with the goal of putting Iraqis back to work.
Edward Kennedy, the veteran Democratic senator, questioned whether congress would support funding for a troop increase.
"Any request for additional troops is going to have to be accompanied by a very, very strong justification and in fact a detailed plan," on the purpose of the troop increase, he said.
Underlining the challenge facing Bush and Iraq's US-backed government, fighters on Monday ambushed a bus carrying workers to Baghdad airport in the latest occurrence of sectarian violence that is killing hundreds of Iraqis a week.
A hospital source said 15 bodies and 15 wounded people had been brought to the hospital after the attack in the neighbourhood of Amriya in western Baghdad.
|Al-Maliki has vowed to crush illegal armed|
groups regardless of sect or politics [AFP]
Police and an interior ministry source said four were killed and nine wounded.
The attack came two days after al-Maliki announced a major security plan for Baghdad, vowing to crush illegal armed groups "regardless of sect or politics" - suggesting he may be ready to tackle militias loyal to his fellow Shias.
Police recovered 25 bodies, mostly of tortured death squad victims, around Baghdad in the 24 hours before Monday evening, an interior ministry source said.
In Baghdad 13 people were killed and 18 were injured caught in gun battles and roadside bombs.
Al Jazeera reported that the Iraqi army has asked for the support of Kurdish brigades to maintain security in the Iraqi capital.
Jafar Mustafa, the minister of Iraqi Kurdistan region for Peshmerga affairs, said that three Iraqi brigades based in the region would participate in the new Baghdad security plan.
The three brigades belong to Iraq's defence ministry and were not part of the Peshmerga force, he said.
Al-Sadr aide held
In another development, Saudi authorities arrested Hasan al-Zarqani, head of Muqtada al-Sadr's Damascus office, in the Saudi holy city of Medina, a spokesman for the Iraqi Shia leader said on Monday.
"When I asked commander of the force that arrested al-Zarqani about the reason behind the arrest, he did not comment and said that he would be released after two hours"
spokesman for Shia leader Muqtada al-Sadr
Speaking to Al Jazeera, Miqdad al-Saad said that Sheikh Hasan al-Zarqani, head of external affairs of al-Sadr's Syria office, was arrested on Monday afternoon while he was performing religious rituals at the Jannat al-Baqai cemetery.
"Sheikh Hasan al-Zarqani was among hundreds of pilgrims but his arrest was intentional," al-Saad said.
Al-Zarqani was visiting a holy site where the Prophet Muhammad's relatives and companions are believed to be buried.
The Saudi authorities alleged that al-Zarqani uttered the phrase "peace be on Muhammad and his family" - a phrase which the arresting authorities said is forbidden, al-Saad said.
"When I asked the commander of the force that arrested al-Zarqani about the reason behind the arrest, he did not comment and said that al-Zarqani would be released after two hours," he said.
But al-Zarqani was transferred to another security department in the city, according to al-Saad.
No further details were reported about the reason behind the arrest.