Iraq's security forces must develop intelligence, battlefield medicine and logistics before they can stand on their own, the No. 2 U.S. commander in Iraq said.

In the rush to create a security force to guard Iraq against violence from insurgents, the U.S. military has been providing the support networks needed to help the country's forces before the Americans leave by the end of 2011.

Lt. Gen. Lloyd Austin, commander of all ground forces in Iraq, said U.S. troops now have to partner with Iraqis and work with them on a daily basis to provide the necessary additional training.

"Our intent is to make sure we have helped the Iraqis to have the right capacity, the right capability to handle the insurgent activity when we leave," Austin told The Associated Press during an interview Thursday in his office at the Faw Palace, headquarters of Multi-National Corps Iraq.

U.S. forces will be operating under a new security agreement on Jan. 1 that gives Iraqi authorities a role in approving and overseeing U.S. military operations.

It replaces a U.N. mandate that gives the U.S.-led coalition sweeping powers to conduct military operations and detain people without charge if they were believed to pose a security threat. The new pact requires that U.S. troops withdraw from Baghdad and other cities by the end of June and leave the country entirely by Jan. 1, 2012.

Austin said American troops began the transition months ago, conducting more and more joint operations with Iraqi forces. "The reason we are doing them is that we knew this was coming many months ago," he said.

In 2006, U.S. forces attempted to hand over security in portions of Iraq to security forces only to have them collapse under the weight of sectarian violence and insurgent attacks.

Iraqi forces are now responsible for security in 13 of the 18 provinces with coalition forces available for help if requested.

Austin said U.S. forces are moving as fast as possible to get the Iraqi security forces to a capable and competent level, but cautioned progress would take time.

"We are in no hurry to race away and have things crumble on us," he said.

U.S. and Iraqi officials acknowledge that the capabilities of Iraqi security forces have been improving, but privately doubts persist about whether they have the support and discipline to succeed.

Austin acknowledges the security gains are fragile, citing recent flare-ups of insurgent activity in Baghdad, Basra and other parts of southern Iraq.

"We are still fighting a fairly significant fight against al-Qaida in the north," he said.

Austin said the Iraqi force will naturally develop at an uneven pace, saying some units are older and more seasoned than newer units that are just being created.

He also said the forces need to acquire specific weapons and vehicles, and then need to get experience with those items.

Two boys approached a U.S. soldier, pulled out a pistol and handed it over. They got a smile and some candy in return.

The gun was plastic, and the boys were following a local Iraqi military order to surrender all toy weapons - an effort to prevent children from being mistaken for insurgents.

With more children on the streets now that violence is down, American soldiers have a new mission in this former "triangle of death" city south of Baghdad: clearing all toy guns from the bustling shopping area as they search for suspected insurgents and weapons caches.

The toy gun ban shows how jittery the U.S. and Iraqi forces still are in a country where the enemy doesn't wear a uniform.

The U.S. warned early this year of a "disturbing trend" of al-Qaida in Iraq recruiting and teaching young boys to kidnap and kill. The military released several videos seized from suspected al-Qaida hideouts in Diyala province north of the capital showing militants training children who appeared as young as 10.

Teenagers have also carried out actual attacks. On Dec. 1, a teenage suicide bomber followed by a parked car bomb struck police recruits in Baghdad, killing 16 people. On Jan. 20, a teenager carrying a box of candy blew himself up at a gathering of tribal members near Fallujah, killing six people.

From a distance, a soldier can't tell whether the weapon is real and has to make a fast decision that could cost someone his or her life.

Soldiers in the Mahmoudiya area recently became alarmed when they saw a boy pointing a gun that looked very realistic. They went on alert and held the child until it was determined that the gun was a toy.

"This is one of the biggest issues that we're encountering right now," said Lt. Cameron Mays, 24, of Marion, Ky. "Right now it's a gray area. You're talking about a prime situation where a U.S. soldier has a split-second to make a decision about whether there's a danger."

The order to ban toy guns in Mahmoudiya and surrounding areas was handed down by Staff Maj. Gen. Ali Jassim al-Freiji, the commander of the Iraqi army's 17th Division, which oversees the region.

1st Lt. Tray Marsh, who took the plastic pistol, congratulated the boys for doing the right thing as he and other U.S. soldiers began a joint foot patrol with their Iraqi counterparts through the city's main market area on Wednesday. The gun was black and had a red cap.

Members of Delta Company, 1st Combined Arms Battalion, 63rd Armor Regiment, based in Fort Riley, Kan., have collected some 15 plastic weapons in the past two weeks, piling them up on filing cabinets and hanging some on the walls in their office at the U.S. base at Mahmoudiya.

Marsh, 34, of Shreveport, La., later showed another gun from the plastic weapons cache that could easily be mistaken for a real nickel-plated .45-caliber pistol from a distance.

There's no punishment for having a toy gun. The soldiers will just take them away if they find them and perhaps talk to the parents to make sure it doesn't happen again.

Going after toys is somewhat of a welcome change for the soldiers - many of whom are on at least their second tour in Iraq and participated in the fierce fighting that raged as recently as this spring. Mahmoudiya, 20 miles south of the capital, is part of a region that was long known as the "triangle of death" because of ongoing battles between Sunni and Shiite extremists.

British soldiers in the southern Iraqi province of Basra have also become concerned about children playing with toy guns, although no ban has been imposed.

The British military issued a public safety announcement on Friday asking parents not to allow their children to play with toy guns on the streets "in case security forces mistake them for real weapons and open fire."

Maj. Bill Young, a British military spokesman, said the issue was coming up for the first time since the war started nearly six years ago - perhaps because of a possible influx of toy guns or because better security is encouraging people to spend more time outdoors.

"Maybe last year children wouldn't have been out on the ground and their parents wouldn't have let them play with the toy guns," he said. "But there is still a risk with a significant number of British and Iraqi troops on the ground with weapons."

Military officials said it was up to Iraqi authorities to impose such bans as part of local security measures. Iraq has no law forbidding ownership of real guns, and every household is permitted to have one firearm for self defense.

But nobody likes to see a child cry - and even battle-weary soldiers have a soft spot.

Mays stopped short during Wednesday's market tour after getting a call on his radio about the latest discovery, then doubled back to the soldiers hovering around the toddler cradling the toy gun.

Iraq's finance minister warned Friday that he will make more cuts in government spending next year and urged ministries to curb expenses to offset the effects of the drop in world oil prices.

Iraq depends on oil revenues for more than 90 percent of its budget. On Friday, oil prices fell below $45 a barrel - down from a peak of more than $147 a barrel last summer.

Finance Minister Bayan Jabr said in a statement that the Finance Ministry will reconsider the budget in early 2009 and order austerity measures if necessary to make up for the revenue shortfall.

Last month, the Iraqi government adopted a revised 2009 budget of $68.6 billion. The original budget for next year was $79 billion. Revenues are based on an oil price of $62.50 per barrel, down from an original estimate of $80.

He said that the ministry is watching the falling oil prices carefully and would take measures next year to "revise the budget and scale down unnecessary expenditure as a way to ensure the continuity of the economy."

Such moves would impact on the government's stumbling reconstruction efforts aimed at rebuilding the country's crumbling infrastructure - especially energy, electricity and oil facilities.

Earlier this year, Jabr said that about $15 billion of the 2009 budget had been earmarked for reconstruction.

"We call on all ministries and local governments to continue reconstruction, but at the same time reducing expenditures and cutting down any unnecessary expenses," Jabr said in the statement.

Talk of cutbacks and austerity is a strong setback to optimistic forecasts for the Iraqi economy last summer where oil prices were soaring.