The military admitted late Sunday that three bank employees – a 57-year-old man and two women coworkers – killed by U.S. soldiers in the Baghdad airport complex were just as their loved ones and Iraqi police had maintained: "Law abiding citizens of Iraq." But the soldiers who fired at them were, a military statement said, "not at fault."

The announcement about the conclusion of an Army investigation corrected what had seemed implausible all along. For weeks after the June 25 shooting, the Army claimed a weapon was found with the Iraqis' car despite the fact that they had just passed through the rigorous weapons searches leading to the airport terminal. Even as NEWSWEEK reported on the high-profile case July 7, the military was standing by its story, which would have meant that a long-time employee of an airport bank branch suddenly decided to divert from his daily commute to fire small arms at soldiers in multiple armored vehicles. The original Army statement portrayed the incident as a minor combat victory, claiming soldiers had killed three "criminals" attempting to attack them.

The U.S. military says there were zero attacks in Baghdad on Wednesday. A year ago, there were an average of 43 a day. The question of how this happened has led to the latest tussle in America's race for the White House. Republican candidate and of Iraq War supporter John McCain attributes the improvement to George W. Bush’s troop surge. Democratic candidate and war opponent Barack Obama disagrees. Who’s right? The answer is somewhere in between, with an edge to McCain but with Obama raising important points. If you think military force solves problems best, then you can attribute the success to the troop increase and, probably, it largely is. But if you tend to think politics and winning hearts and minds works best, you can point credibly to other factors that also reduced the bloodshed.

The timeline is rather simple. On Jan. 10, 2007, President Bush ordered the troop increase, calling it the "surge" rather than by the more traditional term, "reinforcements." Gen. David Petraeus, the main proponent of the more than 28,000 additional troops, took command on Feb. 10. It then took until June 15 for all the five surge brigades to position themselves. Between February and June, the troops were amassing and already establishing many of the neighborhood combat outposts that were key in reducing the sectarian violence between Sunnis and Shiites.

Starting June 15, a 90-day surge plan kicked in with U.S. troops retaking areas that had fallen to chaos or control by militias and Al Qaeda. Violence rates, based on military graphics, dropped steeply from an anarchic peak of more than 1,500 attacks Iraq-wide per week in June 2007. McCain is right that the troop increase was important, perhaps the key when combined with their new tactics, in turning the country around.

By Lennox Samuels

Two men, one American, the other Iraqi, daubed wet cement on a short stack of limestone bricks and laid the cornerstone for what is to be the first new five-star hotel in Baghdad since the days of Saddam Hussein. A couple dozen people standing in 115-degree heat on a parched piece of land near Zaitun Street and Al Qadisiya Highway, just inside the International Zone, watched the tableau. Most of them understood that the ceremony was a symbol of Iraq's accelerating efforts to transition to life beyond wartime. And the developer's representative spelled it out for those who might not have gotten the message. "This project will be a signal that will go out all over the world that the economy of Iraq is ready for investment," declared Robert K. Kelly, CEO of Delaware-based Summit Global Group.

It will take more than such baby steps to rebuild Iraq, but the cornerstone event is part of a growing trend toward normality in Iraq as violence subsides. Parts of the country remain dangerous and terrorists still occasionally launch attacks that result in mayhem and high body counts, but there is a sense that real change is in the air. "Today we can stand here fairly safely and lay the cornerstone for the future of Iraq," said Brig. Gen. David Perkins, a newly arrived Multinational Force-Iraq spokesman. "This project encapsulates progress across all the aspects of improving security, creating good government and reviving the economy."

Construction on the $100 million, 300-room hotel is to begin in 30 to 45 days. The project is expected to create 500 jobs and be completed within 12 months, Kelly says. The development, dubbed Hotel Two Rivers (Iraq is home to the famous Tigris and Euphrates rivers), will rise in the shadow of monuments to the megalomania of Hussein. Nearby stand the hulking Adnan Palace and the giant Crossed Swords that commemorate the ill-fated Iraq-Iran War.

    Iraqis are mystified by Barack Obama. As he kicked off his tour of Europe and the Middle East—including a stop in Baghdad—this week, both leaders and ordinary people here were trying to size up the Democratic candidate. For many, opinions are distorted by decades of misinformation and years of post-war cynicism about American motives in general. If you ask unemployed, 34-year-old Uday Ahmed whether he views Obama as a Muslim, because his father was Muslim, or as a Christian, which is the candidate's religion, he answers: "I think he is Jewish." It's an old conspiracy complex common in the Middle East, that Jews run American policy. But Ahmed didn't seem to mind. "If he is going to save my country from the chaos, I think I will like him. It is so important to have a good person, whether he is a Muslim, a Christian, or Jewish."

    Iraqis--even those who like and work with Americans--generally see the American invasion as a manifestation of U.S. interests in controlling the region and its oil wealth rather than anything done for their well-being. Most we talked to thought Obama would follow that path. Maybe, with all the power outages, they haven't had a chance to be touched by the candidate's telegenic charisma and set aside their cynicism. Here are some samples from Iraqis when we asked about their views of their incoming guest as the potential U.S. leader, his religion and what he'll do for Iraq:

Sign of the Times: Waleed al-Bayati has re-opened his pizza restaurant (Credit: Larry Kaplow)

Baghdad's probably still too dangerous for western reporters to comfortably linger over meals in restaurants but it's just about right for pizza runs. We made one the other day to mark something of a milestone, the return of Pizza Italiana Napoli, which owner Waleed al-Bayati reopened six months ago. The tiny, crumbling storefront sits amid groceries, liquor stores and sandwich shops on a gritty street near gates to the Green Zone.

There are other pizza options in Baghdad. There's a pizza franchise in the Green Zone and I hear the Italian embassy serves up a great slice to those who can wrangle an invitation. A few restaurants around town offer variations of pizza along with menus of mixed cuisine. But for me and a lot of other reporters who have covered the war, when you think of pizza, you think of Waleed. His shop was a favorite among reporters in 2003 and 2004. We'd meet at the counter – with the gigantic brick oven there's only room for dining at a thin counter in the window – on our way to and from meetings in the Green Zone. A bulletin board was full with business cards from American, British and Italian correspondents. Soldiers also ate there or ordered out, back in the days when things were laid back enough for that. And it was popular with Iraqis who liked western food.

Al-Bayati, 42, learned his pizza skills near the Trevi Fountain in Rome, where he went to college and worked in a restaurant. He speaks Italian and a little English. He opened his shop in 2003 and he was described in Washington Post journalist Rajiv Chandrasekaran's "Imperial Life in the Emerald City," an important book about the war's early days (and being adapted in an upcoming film, "The Green Zone.")

Nearby bombings targeting the Green Zone's Assassins Gate rattled the restaurant and drove business away until almost no westerners would eat there. Al-Bayati closed down for about two and a half years. He says improved security makes the work possible again, a story being told by storeowners around Baghdad. But demand for his pizzas, which cost the equivalent of about $4, is down to a small percentage of what it used to be. The reporters don't come around anymore – in part because there are far fewer than there were in 2004 - and Iraqis are turned off by checkpoints and barriers used to protect the street. His complaints sounded familiar as Baghdadis are increasingly growing used to the relative calm but awaiting economic growth and public services.

When we showed up, it was around 100 degrees outside and he was sweating hard (no AC in the shop) as he shoveled our pizzas into the oven. There was the old pungent smell of sewage outside the door – this was never a big place for atmosphere. But the portly man had a wide smile for me when I walked in and the pizza tasted fine. He said I was the second reporter there in a month.

By Lennox Samuels

As the U.S. presidential aspirants traded criticisms over the war in Iraq this week, some Americans may have been bemused by the insertion of "Anbar" into the discussion. Republican Sen. John McCain used the Iraqi province to show how off-base he thinks Democratic rival Sen. Barack Obama was in his initial opposition to last year's surge, which saw the infusion of 30,000 additional U.S. troops into the war. McCain pointed out that Anbar, once among the deadliest places in Iraq, was greatly improved, with Al Qaeda in Iraq mostly driven from the sprawling western governorate.

The GOP senator was generally right, although Anbar at that moment was not exactly a poster province for tranquility. The day before he spoke, Iraqi authorities declared a security alert and imposed a curfew in Fallujah, a major provincial city and site of some of the war's heaviest fighting just months ago. Fallujah police chief Abdul-Kareem al-Dulaimi says the measure was taken because of recent incidents in the city, including a suicide bombing that killed 15 people and injured at least 17 at a tribal gathering. That attack followed months of calm in Anbar. "We also aimed at limiting the movements of the armed groups on the outskirts of Fallujah who plan to give support to other armed groups inside," he adds.

Anbar has been trumpeted since tribal Sunni militias turned against Al Qaeda in 2006 and appeared to have helped neutralize the terrorist network. But political rifts among the remaining Sunnis appear to be growing more disruptive. The tribal forces are in a bitter power struggle with the establishment Sunni leaders who were elected to key posts back when most Sunnis still boycotted the vote. Recently, the two factions have been feuding over who should be the provincial police chief. U.S. troops had planned to officially turn over security leadership in the mostly Sunni province to Iraqi troops in a ceremony on June 27, but canceled, with the military saying dust storms were going to interfere with travel to the event.

But since then, several Anbar figures have disputed whether the handover, which has occurred in 10 out of 18 provinces so far, should go forward just yet. Tribal leader Ali Hatem al-Suleiman told NEWSWEEK earlier this month that local forces were not strong enough or sufficiently organized to do the job. Though the weather cleared weeks ago, the handover still has not occurred.