CONCORD, N.H. -- Sen. John McCain, R-Ariz., said Friday that there has been some progress in the war in Iraq, but more must be done politically to resolve the conflict.

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"Now that the military effort in Iraq is showing some signs of progress, the space is opening for political progress. Yet rather than seizing the opportunity, the government of Prime Minister (Nouri) al-Maliki is not functioning as it must," McCain said. "We see little evidence of reconciliation and little progress toward meeting the benchmarks laid out by the president. The Iraqi government can function; the question is whether it will. If there is to be hope of a sustainable end to the violence that so plagues that country, Iraqi political leaders must seize this opportunity. It will not come around again."

McCain made his comments in a speech delivered to the Concord Chamber of Commerce. He visited Iraq last week.

"Make no mistake: Violence in Baghdad remains at unacceptably high levels, suicide bombers and other threats pose formidable challenges, and other difficulties abound," he said. "Nevertheless, there appears to be overall movement in the right direction."

His comments came a day after a Pentagon report, ordered by Congress as a midterm gauge on the troop surge ordered by the president in January, said that eight of 18 military benchmarks have been met and that political goals were largely not met.

President George W. Bush unveiled the report Thursday, saying it gave him cause for optimism. That evening, the House rebuked him by approving a bill to begin redeploying troops starting in the spring. And on Friday, two Republican senators drafted a bill to greatly restrict the role of U.S. forces in the war-torn country.

On Friday, McCain criticized Democratic presidential candidates for calling for a withdrawal from Iraq.

"Democratic candidates for president will argue for the course of cutting our losses and withdrawing from the threat in the vain hope it will not follow us here," he said. "I cannot join them in such wishful and very dangerous thinking."

McCain called for an overhaul of U.S. military and diplomatic institutions to better fight against terrorism. He said he would increase the size of the Army and Marines from 750,000 to 900,000 troops, at an estimated cost of $15 billion.

He said the military needs better equipment and should also make an effort to attract people with the right skills to fight against terrorism. He called for the creation of an advisory corps to work with friendly governments and also for a "crash program" in military and civilian schools of strategic languages, such as Arabic.

McCain also made several proposals to improve coordination between military and civilian services, including the creation of an agency patterned after the Office of Strategic Services in World War II. He described it as a "small, nimble, can-do organization that would fight terrorist subversion across the world and in cyberspace."

McCain's visit to New Hampshire came as his campaign suffered recent setbacks. It has undergone two major staff shakeups in a week and is almost broke.

In an interview on New Hampshire Public Radio earlier in the day, McCain took responsibility for the campaign problems, saying that he didn't do what was necessary to run a productive campaign and spent just as much as he brought in when he should have been saving up to pay for costly television advertisements later in the heat of the race.