There are actually three separate "wars" going on in Iraq. In central Iraq, the Sunni Arab minority is split between those who want to join a democratic Iraq, those who want Iraq ruled by a religious dictatorship (this includes al Qaeda, and several competing factions) and those who want the country returned to the rule of a secular Sunni Arab dictatorship. This war gets the most media attention outside of Iraq, because it produces the largest number of explosions and dead bodies.
In the south there is a lower level of violence, as well armed political parties use money, terror and more personal forms of persuasion to promote their different agendas. Basically it comes down to those who want a religious dictatorship, with close ties to Iran, versus those who want a secular democracy, with no Iranian influence. While the majority of Iraqis in the south prefer the secular option, the Iranians are backing the religious parties with money, weapons and advisors. Moreover, the religious parties are more violent. It's democracy versus religious fanaticism. Nothing spectacular so far, but lots of intimidation and low level violence on the streets.
The real military danger unfolds, largely unnoticed, up north in Kurdistan. The Turks have been beefing up their VI Corps, which would be the logical command to undertake serious operations into northern Iraq. This would be instead of the continuous small-scale incursions that the Turks have been engaging in for some years now. Meanwhile, Iran, concerned about its increasingly unruly Kurdish minority, has also been reported to be shifting some troops to Kurdish areas, and firing more artillery shells at suspected PKK (Kurdish separatist) positions across the border in Iraq.
The Kurds are the most economically and politically successful part of Iraq. But the Kurds have several unique advantages. For one thing, they were free of Saddam, courtesy of American and British air power, a decade before the 2003 invasion. The Kurds are not Arabs. They are much better organized, and found a way to settle their differences for the greater good. Thus "Kurdistan" is the most prosperous, safest and best run part of Iraq. This success gives other Iraqis hope. But it gives the Turks and Iranians heartburn.
For centuries, Turks and Iranians have battled their Kurdish minorities, who have long been trying to establish a separate Kurdish state. There are about twenty million Kurds in Iraq, Turkey, Iran and Syria. None of these countries are willing to surrender control of any of their territory to establish an independent Kurdistan. The Turks see the "Kurdistan" in northern Iraq as a direct threat, because the Iraqi Kurds refuse to do anything about the Turkish PKK Kurdish separatists who launch attacks into Turkey from bases in northern Iraq. The Turks are the most effective soldiers in the region, and if they move into northern Iraq in force, real estate will definitely change hands.
The increased violence in Baghdad has not interrupted the economic boom taking place throughout the country. Economic growth has been recently risen to a rate of about 8-percent a year, while inflation has fallen slightly in recent months, from about 30-33 percent to perhaps 20-25 percent. Nevertheless, unemployment still runs high, at around 15-20 percent. Most of this is concentrated in Sunni Arab areas, where religious and secular terrorist groups make economic activity difficult.
Al Qaeda appears to be concentrating its efforts in Baghdad. This is probably one reason for the increase in violence there, particularly sectarian violence. Apparently, despite official policy from al Qaeda Center, al Qaeda Iraq is still controlled by acolytes of the late Abu Musab Al-Zarqawi, who worked hard to spark a sectarian war in the country before his death. Nevertheless, the new government security plan, including the infusion of US troops, is beginning to have some effect. The western part of the city is much calmer and people are beginning to resume normal activities, and there has been a dip in the number of sectarian incidents in the city in recent days.