The bipartisan U.S. commission on December 6 called the situation in Iraq "grave and deteriorating" and urged sweeping changes.
One of the commission's recommendations is to engage with Syria and Iran as part of a "new diplomatic offensive" to help stabilize Iraq.
Iranian Foreign Minister Manuchehr Mottaki said Tehran is in a "position to help."
Syria has yet to react officially, but AFP quotes the Foreign Ministry as calling the report's findings "objective."
Iraq's Muslim Scholars Association -- a group that U.S. officials often claim has ties to insurgent groups -- describes the report as honest in its dire assessment of the situation.
A spokesman for the group, Bashar Faidi, called the report "very realistic and that is why President [George W.] Bush described it as being very harsh."
"This reality has revealed a whole set of realities," he continued. "The first truth was admitting failure: there is no victory, there is no progress, there is no way of improving the situation in Iraq."
The report also urges direct talks between Israel and Syria as part of a revived U.S. commitment to a comprehensive Arab-Israeli peace "on all fronts."
But Israeli Prime Minister Ehud Olmert today said he "sees things differently," and rejected any linkage between Iraq and the Arab-Israeli conflict. He ruled out immediate talks with Damascus, but said Israel does want to restart talks with the Palestinians.
(compiled from agency reports)