This phase occurred between 2005 and 2006.

In 2005, sovereignty was transferred to the elected Iraqi Government. The Sunni populist insurgency of 2004 was destroyed. Sunni Insurgents switched to using network warfare tactics to disrupt the Iraqi and American government and the economy. The American reaction is poor and insufficient to defeat the network-based insurgency until 2007. The Insurgency lacked power to overthrow the Iraqi government. The result is a two year stalemate.

The Situation in 2006 appeared like this:

SunniInsurgent Organization
-Over 40 autonomous organizations consisting of foreign Islamists, native Islamists, Ba’athists, Nationalists, and Sunni Tribes. The most effective are Al-Qaeda in Iraq, Islamic Army in Iraq, 1920 Revolutionary Brigades, the Mujahideen Army, the Ansar al-Sunnah Army.
-Operate in small cells of 25 to 150 men.
-Information Technology bridges the gap between autonomous network. Internet usage grew in Iraq allowing insurgents to use the IT networks for strategic coordination. Cell phones and simple two-way radios are used for tactical coordination.

-Al-Qaeda created the Islamic State of Iraq and leads an Islamist Front in the Insurgency. The ISI created a shadow government and implemented strict Sharia laws in Anbar regions under its control
– Al Qaeda allied with the Mutayibeen Coalition – Six Anbar tribes (The “Sinister Six”).
– Non-Islamist insurgents chaff under Al-Qaeda leadership

Insurgent Strategy
-Small decentralized cells could evade American forces and launch attacks on vulnerable nodes.
-Disrupted key government services, like electricity, oil production, water supplies, police stations and government offices. Network attacks disrupted large segments of the Iraqi economy and weakened government legitimacy
-Islamists attack Shia civilians and security forces with unconventional tactics like car bombs.
-Improvised Explosive Devices inflict US casualties and minimize insurgent losses. The result is the IED war
–Terror attacks in Baghdad. The insurgency never attempted capture Baghdad. Instead, it created the perception that the Americans were not in control. Car bombings and suicide bombings hit targets for propaganda value.
-Al-Qaeda in Iraq focused on an Information Warfare Strategy to demoralize the American public and encourage withdrawal to create the conditions needed for an Islamist victory.

Flaws in the Insurgent Strategy:
-80% of the violence affected 20% of the population within the Sunni Triangle. The insurgency is very concentrated and is not able to disrupt government functions nation-wide
-Mines do not win wars. Unless the insurgents capture and hold territory and populations, they cannot win.
-Islamist attacks on Muslims resulted in a loss of legitimacy and popularity in Iraq. Many Iraqi insurgent groups, including Sunni Tribes and ex-Ba’athists fought Al-Qaeda and associated Islamist movements.
-There is no possible way the Sunnis can retake all of Iraq. Continuing to fight has only isolated Sunnis from positions of power and wealth.

US-Iraqi Strategy
-US focused on training Iraqi Security Forces. Force strength increased to 360,000. This includes local Police, National Police, and the Iraqi Military. The Kurdish Peshmerga are recognized as a legitimate military force, increasing ISF an additional 150,000.
-Coalition forces repeated their 2004 strategy with enemy-centric tactics along the Euphrates River.
-Swarming raids. US forces spread out in company and battalion sized detachments. Units raided insurgent locations using swarming tactics on a tactical and operational level. This disrupted a number of insurgent networks
-Intelligence raids. US forces captured individuals and their equipment, like laptops, maps, etc. This allowed intel to map out insurgent networks and eliminate the entire company. This led to the assassination of Zarqawi.

Flaws in US Strategy
-The United States was unable to apply kinetic force for effect. There was no population-based insurgency and the US enemy-centric response was ineffective against networks.
-Assassination campaigns did not harm the decentralized insurgent networks.
-It did not engage the Sunni tribes

The insurgents learned from the battles of Fallujah that population-based insurgency is vulnerable to decisive defeats. They learned that the Americans are masters of urban combat and tactical swarming maneuvers, so insurgents could not stand against the Americans in direct combat. The rapid growth of Iraqi security forces would make such battles even more difficult.

The Second Battle of the Euphrates continued throughout 2006 without decisive victories for either side. Islamist insurgents waged the most intense terror campaign of the war in Baghdad and Anbar.

The Mahdi Militia (JAM) responded to the terror campaign by murdering Arab Sunni civilians. More than 50% of Arab Sunnis are internally displaced, and a large percentage left Iraq entirely. Sunnis face the possibility of genocide.

The Sunni Insurgency faces defeat, but Al-Qaeda escalated the violence to win the Information War. Iraqi Sunnis recognize the defeat and see no comfort in Islamist propaganda. Sunni tribes united in 2006 to oppose al-Qaeda and the JAM; they create the Anbar Salvation Front in late 2006. These events set the stage for 2007 US counteroffensive.