The US plan

To transfer authority to an interim Iraqi government, selected by regional caucuses of the "great and good", on June 30. The interim administration will then preside over the country while a constitution is crafted and preparations made for democratic elections in 2005.

Grand Ayatollah Ali Sistani's proposal

Iraq's leading Shia cleric is insisting the interim government is elected directly, and is threatening to derail the process. The Shia, who make up 60% of Iraq's population, prefer direct elections as they could expect to emerge as the dominant group. The US says it is not feasible to hold elections so soon. It also fears direct elections could marginalise the minority Sunni population.

Possible compromises

Holding a referendum on the new interim government once it is in place; or for the UN to observe the selection process to ensure transparency. Mr Annan has been reluctant to get involved since he pulled staff out of Iraq in October after a bomb at UN headquarters killed 22 people. However, he has recently written to the US-appointed Iraqi governing council, explaining that for logistical reasons the UN could not be involved in Iraq in any significant way before June and that while the selection process for the caucuses had to be transparent and inclusive, direct elections were out.