SULAIMANIYA, Iraq (Reuters) - The election of a respected Kurdish politician as Iraq's new president and his designation of a compromise figure as premier gives the country a fighting chance of achieving stability after years of sectarian bloodshed, war and economic turmoil.
President Barham Salih, 58, who was elected by parliament, is respected by both the United States and Iran, arch-rivals whose competition for influence in Iraq has fuelled factionalism in a country already dogged by deep sectarian rifts.
The U.S. embassy in Baghdad and Iranian President Hassan Rouhani both congratulated Salih on Wednesday, raising hopes he might be able to energise the traditionally ceremonial role of president and engage Tehran and Washington to Iraq's benefit.
"President Barham Salih has a strong personality and he's well respected by the West and regional countries and most importantly Iran," said senior lawmaker Rebwar Taha from the Patriotic Union of Kurdistan, the party that nominated him.
Salih's choice of Adel Abdul Mahdi, 76, as prime minister defuses months of tension between Iraq's two main Shi'ite blocs who hold the most seats in parliament and possess the most powerful militias.
His premiership marks the end of 15 years of rule by the Dawa Party, which has dominated Iraqi politics since the toppling of Saddam Hussein in a U.S.-led invasion in 2003.
Lawmakers said that was precisely what made Abdul Mahdi an attractive option, especially to powerful cleric Moqtada al-Sadr, who despises Dawa.
Sadr, alongside outgoing Prime Minister Haider al-Abadi, leads one of the two main Shi'ite blocs. The other is led by Iran-backed militia leader Hadi al-Amiri and former premier Nuri al-Maliki.
Amiri and Maliki are Iran's two most prominent allies in Iraq. Abadi was seen as the preferred candidate of the United States, while Sadr portrays himself as a nationalist who rejects both U.S. and Iranian influence.
Iraq now has its three top leaders - a president, prime minister and speaker of parliament - and is edging closer to forming a new government five months after an inconclusive parliamentary election that was marred by historically low turnout and widespread fraud allegations.
The latest appointments come weeks after protests in the oil-rich city of Basra, the jewel of Iraq's southern Shi'ite heartland, threatened to destabilise the country.
The government's inability to handle those protests and provide residents with the basic services they were demanding convinced Sadr to abandon Prime Minister Abadi, his ally.
"After the unrest in Basra, Sayed Moqtada was convinced that a prime minister who failed to bring clean water to his people will definitely fail at bringing stability to his country," said one source close to Sadr.
"That was enough for Sayed Moqtada to sit with Amiri and accept a compromise candidate, Abdul Mahdi."
Salih's election is the first time someone has risen to one of Iraq's top posts without a backroom deal - an outcome that may suggest lawmakers are making the country's dire needs a priority over political gains.
Since Saddam's fall, power in Iraq has been shared among its three largest ethnic-sectarian components.
The most powerful post, that of prime minister, has always been held by a Shi'ite Arab, the speaker of parliament by a Sunni Arab and the presidency by a Kurd, though that formula has not guaranteed stability.
Both Washington and Tehran had been vying for months to influence the shape of the incoming government, but neither can claim to be the deciding factor in the presidential outcome.
"The outcome was not predetermined. Despite U.S. and Iranian intervention, everyone was on the phones," said Bilal Wahab, a fellow at Washington Institute for Near East Policy who is currently in Baghdad. "It was a unique political process, true politics. But this was an outlier event."
Salih designated Abdul Mahdi prime minister less than two hours after being named president. Abdul Mahdi arrived at parliament even before the presidential election was finished, knowing he was already a shoo-in.
Abdel Mahdi had the right political pedigree: he is an Islamist but doesn't belong to the Dawa Party and is perceived as a technocrat with a decent track record in government.
Getting the approval of Sadr, the cleric who has mass appeal to the poor working class who have grown impatient with the political elite dominated by Dawa, was key.
The other big test Abdel Mahdi passed was gaining the blessing of Iraq's top cleric Grand Ayatollah Ali al-Sistani.
Arguably the most powerful man in the country, Sistani has long urged politicians to stop clinging to power and give a new breed of technocrats a chance to rebuild Iraq.
(Reporting by Ahmed Rasheed; Additional reporting by Raya Jalabi; Writing by Ahmed Aboulenein; Editing by Michael Georgy and Gareth Jones)