The international community must do everything in its power to ensure that democracy takes hold in Iraq, Australian Prime Minister John Howard said Tuesday, adding that success or failure could affect not only the region but the entire world.

"If Iraq can become the first democratic Arab state, that will be a very historic event and it will, over time, alter the dynamics of the Middle East for the better," Howard told Australian television in response to the handover of sovereignty to an interim Iraqi government.

"On the other hand, if this experiment fails, if the terrorists win, the cost of that in the Middle East will be very severe indeed," he said.

"And the cost around the world, the boost it will give to terrorism around the world, will be quite incalculable."

Canberra contributed the third-largest contingent to the U.S.-led mission to topple Saddam Hussein last year. As part of a multinational force of some 32 nations, Australia still has around 850 personnel securing Baghdad airport and training the new Iraqi army and coastal defense force.

Howard faces a strong election challenge later this year from an official opposition party that has vowed to withdraw Australian troops from Iraq by Christmas, if voted into power.

He said Tuesday that foreign forces would leave Iraq immediately if requested to do so by Baghdad, but he had no doubt interim Prime Minister Ayad Allawi's administration would want them to remain in place.

"They are not there as an occupier. They are there with the consent of the new Iraqi government and that has been sanctioned by a resolution of the Security Council."

Howard said he believed the majority of Iraqis wanted to live in freedom and to have a democratic future. "But there are plenty of people both inside Iraq and elsewhere who are trying to stop that happening and therefore we have to do everything we can to help."

He was determined that Australia would stay the course, keeping its forces in Iraq "until their respective roles have been discharged and their job has been completed," but he declined to answer questions about how long that may take.

Defense Minister Robert Hill said Australian forces were playing a crucial role in helping to provide security in Iraq and to train the new defense force, "free from the corruption of the past."

"The Howard government is committed to our air traffic controllers, sailors, security detachment, intelligence officers, headquarters staff, trainers, pilots and ground crew remaining until their job is done."

Labor leader Mark Latham, who opposed the Iraq war and has pledged to bring Australian troops home if he forms the next government, welcomed the transfer of power.

A Labor government would work closely with the U.N. and the interim Iraqi government "for the reconstruction of the country and delivery of substantial humanitarian assistance," Latham said.

His statement made no reference to military aid.

On Sunday, an Australian air force C-130 Hercules was fired on from the ground shortly after taking off from Baghdad. In what the commander of Australian forces in the Middle East, Brig. Peter Hutchinson, called a "one in a million chance," an American civilian contractor for the Pentagon was fatally wounded when a single bullet penetrated the aircraft.

Australian transport planes have been moving equipment and people, and evacuating coalition casualties from the area.

Aircraft have been targeted and hit before by gunfire from the ground since the fall on Baghdad, but this is believed to be the first time such an incident has cost a life.

Also over the weekend, terrorists launched a mortar attack against an Iraqi army base in the north where Australians are conducting training. Five Iraqis were wounded.

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