Security and stability in Iraq declined significantly for the third straight year in 2006, which has earned the country the dubious distinction of being termed the second worst failed state in the world--just edging out Sudan for top honors.

The Fund for Peace, an independent research group devoted to preventing and resolving conflicts, conducted the study for Foreign Policy magazine, which published an overview of its results for the magazine's latest issue.

Using 12 social, economic, political, and military indicators, the study ranked 177 states in order of their vulnerability to violent internal conflict and societal deterioration. The index scores are based on data from more than 12,000 publicly available sources collected from May to December 2006, and the 60 most vulnerable were ranked for the failed state index.

"Iraq and Afghanistan, the two main fronts in the global war on terror, both suffered over the past year," the report said.

"Their experiences show that billions of dollars in development and security aid may be futile unless accompanied by a functioning government, trustworthy leaders, and realistic plans to keep the peace and develop the economy."