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America faces a hidden enemy in Iraq—one often overlooked but arguably just as dangerous as the insurgency. This enemy fosters violence, inspires hate and undermines security; U.S. commanders estimate it may account for half of U.S. casualties suffered since the fall of Saddam Hussein. What is this lurking menace? Iraq's deep economic problems.

Talking about the Iraqi economy may seem superfluous today, as the United States and the world grapple with their own fiscal turmoil. But fixing Iraq's economy is critical to success there. It will affect the safety of U.S. troops and the long-term security of every American.

The irony of Iraq's present crisis is that the country enjoys great advantages: nearly 80 percent literacy and a large professional class. Though the country was once a rising economic power, the Iran-Iraq War, the first gulf war and 12 years of U.N. sanctions have had a devastating impact. After the fall of Saddam, average Iraqis had high hopes things would improve. But standing down the Iraqi Army, removing the majority of government officials and bureaucrats and effectively shutting down the state-supported industrial economy put thousands of Iraqis out of work. Economic activity ground to a halt.

By May 2006, these dire circumstances were helping fuel the insurgency. Captured fighters consistently told U.S. commanders they'd been driven to their deeds by their desperate need for money, which insurgent leaders were paying in return for acts of violence. With unemployment over 50 percent in parts of the country, many idle young men saw no other opportunities.

Over the past two years, however, as part of the counterinsurgency strategy applied by Gen. David Petraeus, the Coalition and the Iraqi government have begun addressing Iraq's economic problems. More than 50 major industrial operations have reopened, and thousands of small- to medium-size private companies have been awarded government contracts, stimulating private-sector growth. Almost 200 private bank branches have been automated and linked to international financial systems, beginning the transition of Iraq from a cash-based economy and offering financial services critical to local development. Agricultural experts from top universities have embedded with U.S. troops, helping farmers and food producers.

As security has improved, multinational companies have begun establishing operations—and not just in Iraq's oil sector. U.S. efforts since the summer of 2006 have led to the restoration of 100,000 jobs, and it's estimated that hundreds of thousands more have been created as a secondary and tertiary result. This is a good start. But in a country of 29 million people with 6 million potential workers, much remains to be done.