After working through two consecutive nights, members of the US-appointed Governing Council were optimistic about reaching an agreement later in the day but said they would not sign the document into law before Wednesday.

The interim constitution is aimed at seeing Iraq through a transitional period and into next year. It encompasses a bill of rights, the setting up of a federal state and covers the return of the army to civilian control.

But debate on the text has sparked the council's first major row and exposed ethnic and religious divisions that until now had been kept from sight.

While admitting there were no guarantees for success, a senior official from the US-led coalition said he was optimistic that an agreement would be hammered out. "I think we will be able to finish the document today," he told reporters.

After a sensational walkout by several council members on Friday, the leaders broke off into groups working on up to 60 points that needed finalising before meeting again as a council later in the day.

Tough issues like what role Islam should play in the document, an important part of moves toward a handover of sovereignty on June 30, have been set aside until the final moment to keep the process moving forward.

"We started to learn a new trade and that is called compromise and this is new for us and that is all about democracy," council member Muwaffaq Rubaie told an overnight news conference.

"Failure is not an option, we have to get this document signed and dusted and finished," he said before heading back to the talks.

While gradual political progress was being made, the security situation in Iraq showed little sign of improvement Sunday as fresh casualties added to what has been the bloodiest month since the end of major hostilities last April.

An Estonian soldier serving with coalition forces was shot in northwest Baghdad while on a patrol investigating a homemade bomb. He later died in hospital from his wounds, an army spokesman said Sunday.

A suspect in the shooting, which took place late Saturday, was arrested.

In the northern oil city of Kirkuk, a second police officer was killed in as many days when shots were fired at his patrol Sunday. The attackers fled after an exchange of fire with police. An inquiry was launched to identify them.