WASHINGTON — Acknowledging deepening frustration over Iraq, President Bush said Wednesday he is considering an increase in American forces and warned that next year will bring more painful U.S. losses. New Defense Secretary Robert Gates said in Baghdad that a troop surge was an obvious option.

Bush was unusually candid at a year-end news conference about U.S. setbacks and dashed hopes in the war, which has claimed the lives of more than 2,950 U.S. military members.

He said “2006 was a difficult year for our troops and the Iraqi people. We began the year with optimism” but that faded as extremists fomented sectarian violence between Sunnis and Shiites.

“And over the course of the year they had success,” the president acknowledged. “Their success hurt our efforts to help the Iraqis rebuild their country, it set back reconciliation, it kept Iraq’s unity government and our coalition from establishing security and stability throughout the country.”

Democrats are about to claim control of Congress and Americans are overwhelmingly unhappy about Bush’s handling of the war, so the president is at a turning point as he searches for new approaches. Administration officials said Bush’s remarks were intended to brace a war-weary nation for another tough year in Iraq.