Iraq is expected to ask its Arab neighbours to cancel billions of dollars in debt at an international conference on Thursday that will look at progress on a five-year plan to rebuild the country.

The Stockholm conference is the first annual review of the International Compact with Iraq agreed in the Egyptian resort of Sharm el-Sheikh last year which committed Iraq to implement reforms in exchange for greater international support.

Opening the conference, United Nations Secretary-General Ban Ki-moon lauded the Iraqi government for making "notable progress" in meeting economic, political and security benchmarks set at last year's conference in Egypt.

"If we had to use one word to describe the situation in Iraq today I would choose ... hope," he said. "There is new hope that the people and government of Iraq are overcoming daunting challenges and working together to rebuild their country."

While security has improved in Iraq, with U.S. officials saying violence is at a four-year low, political progress has been much slower, with national reconciliation mired in sectarian tensions between Iraq's Shi'ite and Sunni sects.

The main Sunni Arab political bloc, which quit the government in August, said on Wednesday it suspended talks to rejoin Maliki's Shi'ite-led administration after a disagreement over a cabinet post.

Sweden said on Monday that 97 delegations including 500 to 600 political leaders would attend the one-day conference in Stockholm, including Iranian Foreign Minister Manouchehr Mottaki and representatives from Arab countries such as Egypt and Syria.

In a 75-page progress report to the conference, oil-rich Iraq stressed it was not looking for money from the international community but for technical help to get its economy back on its feet after decades of wars and sanctions.

"The high-level meeting in Stockholm is not a pledging conference - Iraq is not a poor country ... Instead, Iraq looks for partnership, technical assistance and economic exchange," it said.

"Saddam-era debts and compensation payments are obstacles to trade and investment. They represent a legacy of the past which this government wants to leave behind," it said.

About $66.5 billion (34 billion pounds) of Iraq's $120.2 billion foreign debt has been forgiven, according to U.S. State Department estimates. More than half of the outstanding debt is owed to Gulf Arab states.

"Most of the countries which participated in the Sharm el- Sheikh conference have responded, some by opening embassies and writing off debts. Now we are here to call on our Arab brothers to do the same," Iraqi Finance Minister Bayan Jabor told Reuters on the eve of the conference.

SCRAPPING COMPENSATION

Iraq is pushing for an end to the billions of dollars it pays in compensation for Saddam's invasion of Kuwait in 1990. At present it is required to set aside 5 percent of its oil revenues, which Iraq says will amount to $3.5 billion this year.

U.S. Secretary of State Condoleezza Rice on Thursday defended the U.S.-led invasion of Iraq in 2003 to topple Saddam, saying ending the dictatorship was the right thing to do.

"The one thing that I am certain was not a mistake was to liberate the Iraqi people from Saddam Hussein," Rice said, speaking to reporters before the conference.

Former White House press secretary Scott McClellan charges in a new book that President George W. Bush used propaganda to sell the Iraq war.

Rice said she would not comment on a book she has not read and that it was a characteristic of history that people did not understand the full implications of events until well into the future.