Just started monitoring this site and am posting for the first time. I've been working in the international development business most of my career, mainly on USAID contracts, including some work in Iraq. Thought I might give your question a try. Here goes:

From my experience with USAID, they have traditionally looked at "capacity building" as strictly building the skills and capacity of Cooperating Country Nationals (CCNs). In the past especially, but also now, this involved a lot of training. More recently, it includes "empowering" people or "creating an enabling environment" as USAID has realized you can train the hell out of people, but if they have no personal power, influence or enabling environment, they're just a lot of people with good skills and no way to make use of them. It also doesn't help to take a person out of their environment/culture, train them and then drop them back into that environment, especially if it doesn't support what you've trained them to do.

The other element of capacity building is a shift from human capacity building to institutional or organizational capacity building. It's along the same lines as above. An individual has a limited potential to implement change, but an institution has greater influence and sustainability. Still, it's building the human capacity within institutions, not so much the infrastructure. However, USAID understands that you can't just build human capacity w/out the supporting infrastructure. You have to build a school before you train teachers (or at least do them at the same time).

Regarding Iraq and PRTs, I think the key concept is shifting from us doing it for them to them doing it themselves. It's a basic concept to understand, but much more difficult to implement. In war time and in absence of any local authority (or identifiable, trusted authority), you need to make decisions. But, earlier rather than later, you need to find capable people to trust, step back and trust them to make decisions and manage things. You don't just hand over the reigns and walk away, but train, mentor, advise and support - constantly reinforcing, monitoring and guiding and always stepping back as they step up (hopefully). Unfortunately, it takes a long time and a lot of patience and it requires one to allow local counterparts to make decisions and manage things in their own way (even if you don't agree with it).

It's not about sitting on the council, like we did with PRDCs, making decisions. That's not legitimate and that won't last. It's also not about making decisions, then going down to meet the local sheikhs to inform them of the decision and seek their buy-in (after the fact). It's more about supporting a process. How does a provincial council member seek the input of citizens and make decisions based on their input? How does a council member exert his/her authority when it's not clear to anyone what his/her authority is?

I hope that helps. I realize I strayed off topic into my own personal philosophy, so take it with its own dose of salt. I think it is a decent representation of how the soft power people think....