The country's Kurdish negotiators are determined that the new constitution enshrine the autonomy from Baghdad they have enjoyed de facto for some years.
Shi'as, who form the majority of Iraq's population, are also inclining toward autonomy for themselves in the south. That's despite the strong opposition from their fellow Arabs, the Sunnis. Formerly the elite in Iraq, the Sunnis now feel threatened at being sandwiched between these two distinct entities.
The only practical way to meet this Kurd and Shi'a desire for autonomy -- while retaining Iraq as a single state -- is through federalism.
"Federalism is a device to give a country with a very diverse mix of peoples a sense of their own autonomy within a united structure," said Michael Clark, a constitutional expert at London's Kings College. "So it's a very useful device for some types of country."
Another constitutional expert, Brendan Donnelly of the Federal Trust London-based think tank, says much depends on what attitude the Iraqis themselves bring to the proposed federation.
"The question is, is there enough of a sense of oneness, of identity, of wishing to work together, to set up a federal system [in Iraq]?" Donnelly said. "And I can't give you the answer to that any more than anyone else can."
The most frequently cited example of a federation in the present day is the United States of America. But there are many other successful federations, including Switzerland, India, Germany, Canada, Malaysia, and Australia. In fact, some 40 percent of the world's population lives under some variation of federalism.
It is, therefore, a well-proven form of government. But at the same time, there are examples of where it has not worked well. The catastrophic breakup of Yugoslavia is one; the tottering unity of the African giant Nigeria is another.
So how does federalism work? It can be defined as a system of government in which a number of political entities -- call them constituent states -- may be diverse, yet feel they have enough in common to bind themselves together voluntarily as one country.
These states give part of their sovereignty to a single central government with defined and limited powers. The central government is usually charged in particular with responsibility for dealing with the outside world in the interests of all the constituent states.
Federalism is closely associated with democracy, in that oppressive, centralized regimes do not usually wish to share power genuinely with other political entities.
Australia, a country with a population comparable in size to Iraq, is an example of how a successful federation works. In 1901, six separate self-governing British colonies on the Australian continent federated voluntarily into one country.
All political powers remained with the constituent states, except for those powers listed in the country's constitution. The federal government, therefore, was in no position to dominate the states.
The federal parliament has two houses, the lower House of Representatives, and the upper chamber, the Senate.
Each of the country's six states sends directly elected deputies to the lower house, in numbers that are proportional to the population of each state.
The Senate represents the rights of the constituent states, with each state sending 12 directly elected senators (the country's two territories each send two senators). The Senate can block or delay legislation issued by the lower house.
The original intention of the framers of Australia's constitution has been altered by time and circumstance. Taxation powers were at first the domain of the states. But the emergency conditions produced by two world wars and the Great Depression of the 1930s saw the taxation powers taken over by the federal government.
Those powers have remained at the center ever since. This greatly strengthens the federal government in its dealings with the states, because the center is in a position to influence what money is spent on.
If Australia is a success story for federalism, Nigeria is not. The problem in Africa's biggest country stems from the fact that it is a colonial creation, put together by the British with little regard for natural boundaries or population groups.
Nigeria today comprises some 300 different ethnic groups, with Muslim, Christian and animist religions. In this case, Clark says, federalism has not proved a successful formula for good governance.
"The Nigerians have never found a federal structure which actually meets their diversity and yet keeps the country together," Clark said.
The group that benefited most after independence from Britain in 1960 were the Igbos, who dominated Nigerian business and government administration.
But after two coups, the Igbos found themselves sidelined. They decided to secede, taking the country's newfound oil fields with them into the so-called Republic of Biafra. That led to a bitter four-year war, in which millions of Biafrans died, mainly through starvation. In the end, Biafra was suppressed.
So what are Iraq's prospects as a federation? Clark and Donnelly says much depends on the basic stability of the participants, and their willingness to cooperate.
"The downside of federalism is that it has to rest on a very stable basis," Clark said. "Unless federalism is acceptable in the way it is practiced, then it also becomes a recipe for disunity, as it has been in Nigeria for many years."
Will It Work In Iraq?
For Iraq, a determining factor will be the extent of Sunni opposition to the prospect of a federation dominated -- numerically at least -- by Shi'as.
And there is the question of the country's oil wealth. The biggest Iraqi oil fields are in the south, inside the projected Shi'a entity. And there is also oil in the north, in the Kurdish-controlled area.
In the middle lie the Sunnis, who fear they will be excluded from a share in Iraq's new oil wealth. But analysts say that should not be a problem if the revenues go to the federal government. That way, they can then be redistributed from the center to the states according to set formulas.
But there is potential for a Nigeria-like scenario, if one entity tried to secede, taking its oil wealth with it. In such a case, much would depend on how the other entities would react -- whether they would let it go without a fight.
For RFE/RL's full coverage of developments in Iraq, see "The New Iraq"