Defense Skirts State in Reviving Iraqi Industry:

Paul Brinkley, a deputy undersecretary of defense, has been called a Stalinist by U.S. diplomats in Iraq. One has accused him of helping insurgents build better bombs. The State Department has even taken the unusual step of enlisting the CIA to dispute the validity of Brinkley's work.
His transgression? To begin reopening dozens of government-owned factories in Iraq.

Brinkley and his colleagues at the Pentagon believe that rehabilitating shuttered, state-run enterprises could reduce violence by employing tens of thousands of Iraqis. Officials at State counter that the initiative is antithetical to free-market reforms the United States should promote in Iraq.

The bureaucratic knife fight over the best way to revive Iraq's moribund economy illustrates how the two principal players in the reconstruction of Iraq -- the departments of Defense and State -- remain at odds over basic economic and political measures. The bickering has hamstrung initiatives to promote stability four years after Saddam Hussein's fall ...

Some interesting stats in this piece. I wonder where the data comes from:

The U.S. Agency for International Development estimates that nearly half of Iraqis are unemployed or work fewer than 15 hours a week, but those figures do not include hundreds of thousands who once worked for state-owned enterprises and continue to collect about 40 percent of their original salaries. If they are counted, Brinkley believes, the true figure for unemployed and underemployed Iraqis may approach 70 percent.

...

State asked the CIA to assess the link between employment and attacks on U.S. forces in Iraq, two U.S. government officials said. The CIA's subsequent regression analysis found no statistically significant tie between the two phenomena, the officials said. The CIA also told State that the vast majority of insurgents questioned by U.S. interrogators in Iraq claimed to be employed, one official said.

Brinkley said he felt stung by the opposition, but he took heart from the support of England and other Pentagon officials. He also countered with an analysis from the military's Joint Warfare Analysis Center, which asserted that a slight increase in job satisfaction among Iraqis led to as much as a 30 percent decline in attacks on coalition forces, according to a U.S. official familiar with its contents who supports Brinkley's efforts.