No more combat brigades will come home for the rest of this year.
There are about 146,000 US troops in Iraq.
The move was criticised by his Democratic party opponents who want a swift withdrawal of troops and the war to end.
In a speech at the National Defence University, Bush said more troops may be withdrawn in the first half of 2009 if conditions improve.
But that decision would soon be up to his successor.
Bush leaves office on January 20.
“Here is the bottom line: While the enemy in Iraq is still dangerous, we have seized the offensive. Iraqi forces are becoming increasingly capable of leading and winning the fight,” he said.
Still, most of the US forces are staying.
Democrats quickly shot back that Bush isn’t doing enough to get troops out of Iraq and into Afghanistan, where violence is rising.