The document being drawn up by the British government and the US will be presented to the Iraqi parliament in October and will spark fresh controversy over how long British troops will stay in the country. Tony Blair hopes that, despite continuing and widespread violence in Iraq, the move will show that there is progress following the conflict of 2003.

Britain has already privately informed Japan - which also has troops in Iraq - of its plans to begin withdrawing from southern Iraq in May, a move that officials in Tokyo say would make it impossible for their own 550 soldiers to remain.

The increasingly rapid pace of planning for British military disengagement has been revealed on the eve of the Labour Party conference, which will see renewed demands for a deadline for withdrawal. It is hoped that a clearer strategy on Iraq will quieten critics who say that the government will not be able to 'move on' until Blair quits. Yesterday, about 10,000 people demonstrated against the army's continued presence in the country.

Speaking to The Observer this weekend, the Defence Secretary, John Reid, insisted that the agreement being drawn up with Iraqi officials was contingent on the continuing political process, although he said he was still optimistic British troops would begin returning home by early summer.

'The two things I want to insist about the timetable is that it is not an event but a process, and that it will be a process that takes place at different speeds in different parts of the country. I have said before that I believe that it could begin in some parts of the country as early as next July. It is not a deadline, but it is where we might be and I honestly still believe we could have the conditions to begin handover. I don't see any reason to change my view.

'But if circumstances change I have no shame in revising my estimates.'

The disclosures follow rising demands for the government to establish a clearer strategy for bringing troops home following the kidnapping of two British SAS troopers in Basra and the scenes of violence that surrounded their rescue. Last week Blair's own envoy to Iraq, Sir Jeremy Greenstock, warned that Britain could be forced out if Iraq descends so far into chaos that 'we don't have any reasonable prospect of holding it together'.

Continued tension between the Iraqi police force, the Iraqi administration and British troops was revealed again yesterday when an Iraqi magistrate called for the arrest of the two British special forces soldiers. who were on a surveillance mission when they were taken into custody by Iraqi police and allegedly handed on to a militia.

For Blair, the question of withdrawal is one of the most difficult he is facing. The Prime Minister has abandoned plans, announced last February, to publish his own exit strategy setting out the milestones which would have to be met before quitting: instead, the plans are now being negotiated between a commission representing the Shia-dominated Iraqi government, and senior US and UK diplomats and military commanders in Baghdad.

Senior military sources have told The Observer that the document will lay out a point-by-point 'road map' for military disengagement by multinational forces, the first steps of which could be put in place soon after December's nationwide elections.

Each stage of the withdrawal would be locally judged on regional improvements in stability, with units being withdrawn as Iraqi units are deemed capable of taking over. Officials familiar with the negotiations said that conditions for withdrawal would not demand a complete cessation of insurgent violence, or the end of al-Qaeda atrocities.

According to the agreement under negotiation, each phase would be triggered when key security, stability and political targets have been reached. The phased withdrawal strategy - the British side of which is expected to take at least 12 months to complete - would see UK troops hand over command responsibility for security to senior Iraqi officers, while remaining in support as a reserve force.

In the second phase British Warriors and other armoured vehicles would be removed from daily patrols, before a complete withdrawal of British forces to barracks.

The final phase - departure of units - would follow a period of months where Iraqi units had demonstrated their ability to deal with violence in their areas of operation.

Blair will tackle his critics over Iraq in his conference speech, aides said this weekend, but would decline to give a public deadline for withdrawing troops. He is expected to make several major interventions on the war in the coming weeks, before a vote on the new constitution in mid-October, explaining how Iraq could be steered towards a sufficiently stable situation to allow troops to come home.

'What we are not going to set out is a timetable: what we are going to set out is a process of developing that security capability,' said a Downing Street source. 'We don't want to be there any longer than we have to be, the Iraqis don't want us to be there any longer than we have to be, but the Iraqi Prime Minister has made it very clear that our presence there is one that is necessary.'

It was revealed yesterday that an Iraqi judge issued the warrants for the arrest of the two rescued soldiers, accusing them of killing one policeman and wounding another, carrying unlicensed weapons and holding false identification.

The continuing preparations for a military withdrawal come, however, as officials are bracing themselves for a new political crisis in Iraq next month, with what many regard as the inevitable rejection of a new constitution by a two-thirds majority in three provinces, sufficient to kill the document and trigger new elections.