A draft of Iraq's new constitution should be ready by today, a day ahead of schedule, President Jalal Talabani said, but some involved with drafting the document doubted the deadline could be met.

"If God is willing, tomorrow it will be ready," Talabani told a news conference in Baghdad yesterday, although he said two major issues remained under negotiation.

"There are no obstacles but discussions on federalism in the south and the relation between religion and state."

Talabani, a former Kurdish guerrilla who fought Saddam Hussein, has gathered Iraqi leaders from across sectarian and ethnic divides to try and hammer out an agreement on the charter before a self-imposed August 15 deadline. Talabani's spokesman Kamran Qaradaghi hinted later the talks were heading towards accepting a softer federalism that still gave Kurds autonomy guarantees and powers to the provinces.

"There is an opinion favouring decentralisation, with wide powers for the provinces and an assurance of the special nature of the Kurdish region," he said in a statement. Qaradaghi said Kurdish and Shi'ite politicians would continue talking late into yesterday night.

US President George W. Bush cited the constitution in his weekly radio address, describing it as a "critical step on the path to Iraqi self-reliance". He said Iraq's insurgency would not cause US troops to withdraw prematurely.

The Iraqi government and its US backers hope the constitution will set Iraq on a political path that takes the sting out of the insurgency and allows Washington to bring many if not all of its troops home.

Some drafters have suggested postponing discussion of the most contentious issues in order to make the August 15 deadline, but Talabani said that would not happen.

Some of those on the 71-member drafting panel have said in the past 24 hours that the deadline can be met, while others remain sceptical and are readying for all-night sessions.

"We have finished 75 per cent of the issues and we will complete the remaining 25 per cent today and present the constitution to parliament tomorrow," Bahaa al-Araji, a member of the drafting team, told Reuters.

Araji, from the long-oppressed Shi'ite majority that was swept to power in an election in January, said the committee had broadly agreed its approach to federalism, one of the most sensitive issues.

But Abdel Nasser al-Janabi, from the Sunni Arab community dominant under Saddam Hussein, said talks were still deadlocked:

"I am sure we will not reach a conclusion today... We will postpone it to tomorrow or Monday. The sticking point is federalism. Most probably this will be postponed until after the elections."

After a referendum on the constitution in October, a new general election is scheduled for December.