Baker was speaking as the Iraq Study Group, a bipartisan commission he co-chairs that was asked by the U.S. Congress to review U.S. policy in Iraq, presented a report of its recommendations.
The report described the situation in Iraq as "grave and deteriorating" and found that U.S. policy "is not working."
Baker said the group believes a "stay-the-course" approach is no longer viable in Iraq and that the United States should withdraw most combat troops by early 2008.
Baker added that "there is no magic formula that will solve the problems of Iraq." But in order "to give the Iraqi government a chance to succeed," he said, U.S. policy "must be focused more broadly than on military strategy alone or on Iraq alone. It must seek the active and constructive engagement of all governments that have an interest in avoiding chaos in Iraq, including all of Iraq's neighbors."
The report urges the United States to increase training for Iraqi troops ahead of a handover.
The other co-chairman of the group, former U.S. Representative Lee Hamilton, said violence is growing and becoming increasingly lethal. Hamilton said the Iraqi people are enduring great hardship and noted that U.S. forces are being attacked with alarming frequency.
Hamilton declared that the Iraqi government is not providing adequate security or advancing the cause of reconciliation. "The current approach is not working and the ability of the United States to influence events is diminishing," he said.
The study recommends the United States reduce "political, military, or economic support" for Iraq if the Baghdad government in Baghdad cannot make substantial progress toward taking care of its own security.
Ahead of the report's release, there had been speculation that the group would recommend that Iraq be partitioned, but Baker said the report did not favor dividing Iraq along ethnic lines.
The group also looked beyond Iraq, urging Washington to encourage direct talks between Israel and Syria as part of a revived U.S. commitment to a comprehensive Arab-Israeli peace "on all fronts."
The report is the culmination of eight months of work and, though the report's recommendations are nonbinding for the Bush administration, its publication is seen as presaging a major change in U.S. policy.
Earlier U.S. President George W. Bush pledged to take the report "very seriously" and to act on it in "a timely fashion." He said the report "gives a very tough assessment of the situation in Iraq" and that some of its proposals are "really very interesting proposals."
The report and the situation in Iraq are expected to dominate talks in Washington on December 7 between Bush and British Prime Minister Tony Blair in Washington. Shortly before he left Britain, Blair told Parliament the war in Iraq is "not being won," but he said it is important Britain and the United States succeed in the mission.
Bush's nominee to be the next U.S. defense secretary, Robert Gates, said on December 6 that the United States is not winning the war in Iraq and that a fresh approach is needed.