The Status of Forces Agreement (SOFA) text will now go before parliament for approval, ending months of wrangling between Baghdad and Washington.
The two sides have been racing to secure a bilateral agreement to replace the UN mandate currently governing the more than 150,000 US-led troops stationed in the country, which expires on December 31.
In October Iraq sent a new round of suggested changes to the draft agreement, to which the United States has responded.
Here are the main developments since the US-led invasion of Iraq in March 2003 that toppled the regime of slain dictator Saddam Hussein.
2003 - May 1: Six weeks after the launching of Operation Iraqi Freedom, President George W. Bush declares an end to major combat in Iraq. An international stabilisation force is set up with around 156,000 troops, of which 148,000 are American soldiers.
2005 - Dec 23: Washington announces that 7,000 soldiers will be withdrawn by spring 2006. More than 2,000 US soldiers have been killed in Iraq since March 2003, putting the US administration under pressure from US public opinion.
2006 - Dec 6: A high-level study group on Iraq, set up at the initiative of the US Congress, reports that Bush's policy in Iraq has failed and calls for the withdrawal of US forces to start.
2007 - Jan 10: Mr Bush announces a 'surge' in troop numbers to Iraq, sending another 30,000 soldiers on a mission to end the chaos in the country. US forces rise from a base of about 132,000 to a high of 166,300 in October.
- Sept 13: Mr Bush announces plans to begin a drawdown of US 'surge' brigades, with the first of five to leave by the end of 2007.
- Nov 26: Mr Bush and Iraqi Prime Minister Nuri al-Maliki sign a declaration of principles on the US military presence. Mr Maliki announces that 2008 will be last year in which US forces will be present under a UN mandate. After that the presence will be determined by a bilateral accord.
2008 - April 10: Mr Bush announces the drawdown of US combat brigades will be suspended after July, but says 15-month tours of duty will be shortened to 12-month tours after August.
- May 6: A third 3,500-strong 'surge' brigade pull out of Iraq. The overall US force level is 156,000 soldiers.
- Sept 1: An Iraqi daily publishes a draft of the security pact with Washington known as SOFA, showing that immunity for American troops is a key sticking point.
- July 8: The Iraqi government refuses to conclude an accord on the US presence in the country after 2008, as long as Washington does not provide a calendar for withdrawing its troops.
- July 14: Mr Bush rejects artificial calendars for withdrawal, saying that it will depend on conditions on the ground.
- Sept 9: Mr Bush announces he is reducing the US presence by 8,000 in the coming months, which will leave the total number in-country at 140,000. A marine battalion and 3,400 support troops are to leave by the end of the year.
US combat strength will go down to 14 brigades by February.
- Sept 16: US General Raymond Odierno takes command of US-led forces in Iraq from David Petraeus, warning that security gains in the country were 'fragile and reversible.' - Sept 17: Maliki warns that the security pact with the United States is facing 'serious and dangerous obstacles'.
- Sept 24: US officials negotiating return to Baghdad to resume discussions on the security pact which have been deadlocked since early September.
- October 23: Iraq takes control of the central Shiite province of Babil from US forces - the 12th of Iraq's 18 provinces to be put under Baghdad's command.
- Nov 14: The White House endorses the text of the US-Iraq military pact.
- Nov 16: The Baghdad government endorses the pact and sends it to parliament for its approval. -- AFP