Josh Rushing, Al Jazeera's military analyst, said: "What was once called the coalition of the willing was really just the US and Britain – and now Britain seems to be pulling out."
He said that Blair's announcement of a troop withdrawal could cause problems for the Bush administration, making Washington's argument for what is being called a "troop surge", much more difficult to maintain.
Crispian Cuss, a defence affairs advisor and a former British army captain in Basra, told Al Jazeera that Tony Blair was "facing a difficult balancing act" between withdrawing British troops and supporting Britain's US allies.
"Has any of the Bush Iraq plans worked other than causing the worst destruction?"
Zaffar Zohair, Islamabad, Pakistan
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"He [Blair] is talking about only a small reduction in troops," Cuss said.
Initial reports had suggested the British troop withdrawal would be as many as 3,000 troops.
Anders Fogh Rasmussen, the Danish prime minister, also announced the withdrawal of Danish troops from Iraq on Wednesday.
He said about 450 Danish troops stationed in southern Iraq under British command will leave the country in August and will be replaced by a unit of nine soldiers manning four observational helicopters.
British forces have been based in Basra, Iraq's second largest city, since the US-led invasion of March 2003, where they have regularly come under attack.
British commanders say that local Iraqi forces, which have been receiving training from the British military, are approaching the point where they can ensure security despite a reduction in support.
46,000 UK troops deployed for 2003 invasion
Some 7,100 still serving in Iraq, several hundred others on ships in Gulf
132 UK soldiers have died in Iraq since 2003
British operations in Iraq under codenamed Operation TELIC
UK troops largely deployed in Basra with a small number also based in Baghdad
10 soldiers killed in aircraft crash in early 2005, single largest loss of life for British troops
Total cost to UK of Iraq war to date: about $7.8 bn
The British troops will pull out of three bases in the city and a logistics base in Shuaiba outside the town.
Blair said British forces would remain in Iraq in a training capacity and in order to secure supply lines and that "over time ... we will be able to withdraw further".
He said there was a much greater sense of security in Basra and that about 300 reconstruction projects were under way.
"The next chapter in Basra's history will be written by the Iraqis," he said.
Colonel Bob Stewart, a defence analyst and former British military commander in Bosnia, told Al Jazeera that "everyone wants to get out [of Iraq] with as much honour as possible".
Asked if the presence of British troops in Basra was fuelling violence, he said: "Troops can become the catalyst - an object that everyone can unite against. By your very presence you make things worse."
Blair's announcement of a cut in the number of British troops in Iraq, the second-largest foreign contingent after that of the US, comes after George Bush, the US president, announced an increase in the number of US troops in the country.
'Orgy of terrorism'
The Bush administration is sending some 21,000 troops into Iraq in addition to the 138,000 already there, in a last-ditch effort to restore security in the country.
Condoleezza Rice, the US secretary of state, said: "The coalition remains intact and in fact the British will have thousands of soldiers deployed in Iraq in the south."
"It is the plan that, as it is possible to transfer responsibility to the Iraqis, coalition forces would no longer be needed in those circumstances," she said, speaking at a press conference in Germany.
In his speech Blair drew a distinction between Baghdad, where the US forces are concentrated, and Basra.
He said that an "orgy of terrorism" had been "unleashed" on Baghdad and that "if Baghdad cannot be secured, the future of Iraq is in peril".
But, he said: "The situation in Basra is very different from the situation in Baghdad."