Speaking at the White House, Bush said Petraeus would also be given "all the time he needs" to evaluate further troop withdrawals.
The US president also said he would reduce the length of military combat tours of duty in Iraq and Afghanistan from 15 months to one year.
Meanwhile, Robert Gates, the US defence secretary, said on Thursday that he no longer expected US troop levels in Iraq to fall to as low as 100,000 by the end of the year.
But Gates told the senate armed services committee that he expected steeper reductions in troop levels if conditions improved and warned that more troops were needed in Afghanistan.
"I do not anticipate this period of review to be an extended one, and I would emphasise that the hope, depending on conditions on the ground, is to reduce our presence further this fall," Gates said.
'Prospect of success'
Bush said US forces have made major gains since he ordered a build-up of 30,000 US forces - the five brigades of the so-called troop "surge" - last year in order to improve security in the Iraqi capital, Baghdad and surrounding areas.
And while acknowledging that "serious and complex problems remain" in Iraq, he said that "a major strategic shift'' has occurred since the build-up.
"Today we have the initiative,'' the president said. "We have renewed and revived the prospect of success."
Bush also said in his speech that while the Iraq war was "difficult" it was not endless, and said more troops would not be brought home until conditions in Iraq improved.
"The day will come when Iraq is a capable partner of the United States [and] ... a stable democracy that helps fight our common enemies and promote our common interests in the Middle East," he said.
The US president also echoed Petraeus's criticisms of Iran, accusing the Iranian government of continuing to "train and fund illegal
militant groups which are terrorising the Iraqi people and turning them against Iran".
The current drawdown would reduce troop levels from about 158,000 to 140,000.
Al Jazeera's James Bays said in Baghdad that Bush's decision to reduce the length of combat tours would be welcomed by US forces on the ground, many of whom have already done at least three tours in Iraq.
|Many US soldiers in Iraq have already|
done three combat tours in the country [AFP]
The reduction in tour length will, however, only apply to soldiers who deploy from August 1.
In testimony in front of the US congress earlier this week, Petraeus, along with Ryan Crocker, the US ambassador to Iraq, told congress that "significant" military gains from the so-called surge were "fragile and reversible".