There is another choice other than what you have detailed. We will never be able to take out all insurgents and bring peace to all the provinces of Iraq. There are just too many entrenched rivalries and loyalties to various factions. The problem has to be solved at the national level.
The central government must be established to a point where it will have the ability to put down local uprisings in a definite manner where they won't try again. This means manpower, weapons, intelligence, and most of all, the will to take them out. This is what made Saddam Hussein successful at controlling secterian viloence. However his implementation of these methods were so brutal to the point of terrorism among his people. There must be some sort of mechanism put in place where the government can crack down on violence but there be some restraints in place to prevent totalitarianism. A modified version of our Constitution may be the answer, with the current model as an incentive down the road if all is quieted down.
Granted people may not want what we have at this time, but I'm confident once they get a taste of freedom and are allowed to use their entrepreneurial skills they will flourish just like most other countries that have become free. I believe people's spirits want to be free rather than encumbered by a tyrannical government that is not accountable to anyone. If Iraqis are like Iranians they are just as capable of flourishing in the new environment of capitalism.
Of course all this is my opinion and it probably won't work, but to leave now or before there is a strong central government would be a terrible mistake and we will have abandoned the Iraqi people one more time when they were on the verge of freedom from tyranny. The rewards of staying are just as high as the perils of leaving. There is no easy answer right now but Iran must be kept out of there at all costs or we can expect the entire Middle East to become a formidable enemy to the rest of the world. If Iraq goes to Iran, Afghanistan and Pakistan will be next since they have racial ties to them. Next would probably be Saudi Arabia and the rest of the Gulf states. We wouldn't want that, would we?