It looks like the "stall" theory wins out. General Richard Myers at a press briefing yesterday (emphasis my own):

The overall strategy is one that General Casey has been working on very closely with the Iraqi interim government. They have a strategy for the cities. Part of that strategy is that Iraqi security forces must be properly equipped, trained and led to participate in these security operations, and then once it's over can sustain the peace in a given city. And while U.S. forces or coalition forces on their own can do just about anything we want to do, it makes a lot more sense that it be a sustained operation, one that can be sustained by Iraqi security forces. And as the secretary has said and I think we've said here before, we're — that's what we're about is trying to improve the equipping and the training and the leadership in the Iraqi security forces so they're able to do these operations.

... Q: But given the — given the really slow pace at which the Iraqis are being adequately equipped and trained to take on the insurgents, what is the advantage, then, to leaving these insurgents in place in what are essentially safe havens now?

GEN. MYERS: Well, there's more to this strategy than what I said, and that starts to get into the operational issue in terms of how you try to isolate certain communities, and so forth, and set the conditions for successful use of force later on, if you have to go there. With respect to equipping and training Iraqi security forces — you said slow to equip and train — it's relative. By December, we're going to have a substantial number of Iraqi security forces equipped, trained and led to conduct the kind of operations I was talking about.

Whether or not this strategy is in everyone's best interests can be argued; but at least we have insight into the military's thinking.