Nov. 8 (Bloomberg) -- The political world that George W. Bush inhabited for the last six years -- the one he ruled -- ended yesterday.

The new world, in which Democrats have picked up at least 27 seats to control the House and moved to the brink of capturing the Senate, will require painful adjustments in the president's governing style, compelling him to choose between the role of a partisan warrior or a more conciliatory leader who seeks bipartisan accords to get things done.

Bush's agenda will change, too. He'll be under intense pressure to pull troops from Iraq; defense of his tax cuts will become more difficult; and plans to revamp New Deal-era social programs will be downsized, or ditched. Immigration overhaul, an energy independence plan, and the pursuit of free-trade pacts may be doable goals -- if Bush can cut deals with foes he once steamrolled.

``It's a new day,'' said former Louisiana Democratic Senator John Breaux. ``If the president wants to get some things accomplished, he's going to have to involve the Democrats.''

As Texas governor, Bush worked with a Democratic legislature to improve schools and simplify taxes. As president, he found it far easier to use loyal Republican majorities in the House and Senate to crush Democrats, earning an enmity that may come back to haunt him.

Neither path is without its perils. Bush associates say the president's instinct is to get things done, and note that he has surrounded himself with pragmatic policy advisers, such as Chief of Staff Joshua Bolten, National Economic Council Director Allan Hubbard, and Treasury Secretary Henry Paulson.

Big Initiatives

These officials, and Bush himself, remain interested in revamping federal entitlement programs, taxes, and energy policy, items that could add a heftier domestic component to a Bush legacy dominated by his Iraq venture.

These initiatives would be difficult in the best of times; some, like entitlement overhaul, could require Bush to trade some of his tax cuts -- anathema to many Republicans.

Another challenge for Bush is the fact that Republicans in the new House of Representatives are expected to be a more fractious and ideological group than those in the outgoing chamber. That means accords with Democrats could be risky.

Those deals could expose the president to uprisings from his own ranks, similar to the one that erupted this year over his plan to grant U.S. citizenship to immigrants that entered the country illegally.

Gridlock

``I'm not an optimist about accomplishing much of anything,'' said former Minnesota Republican Representative Vin Weber, a now a well-connected Washington lobbyist. ``Possibilities for cooperation and bipartisanship are really complicated by congressional Republicans and Democrats, who won't see much virtue in working with one another.''

Not surprisingly, opinion is divided on which path Bush will take. Some Republican strategists, among them Kenneth Duberstein, former chief of staff for President Ronald Reagan, say that the desire to put legislative points on the board may drive Bush toward entente with Congress.

``There will be a need for consultation, compromise, and ultimately, accommodation,'' said Duberstein. ``Bush will realize that compromise is not a four-letter word.''

The president has worked with Democrats when it was in his interest, such as his 2001 bid for education reform. ``He's shown he can do it,'' said Fred Greenstein, a political scientist at Princeton University, in New Jersey.

Bitter Campaign

Others, mindful of the president's combative streak, his fealty to his political base, and the bitterness of the just- concluded campaign, aren't so sanguine.

Concessions ``would be very difficult for him,'' said Ross Baker, a political science professor at Rutgers University, in New Brunswick, New Jersey. Bush ``has been used to having things his way for the better part of six years, and he's used to dealing with a party that until very recently has been very disciplined.''

In reality, Bush achieved many of his domestic victories in his first term, buoyed by a surge of public support that followed the Sept. 11 terrorist attacks. He won his tax cuts, legislation that set performance standards for schools, and a 2003 Medicare prescription drug benefit that could cost $517 billion over 10 years, according to the administration's mid-session budget review.

Other ambitious goals, such as partial privatization of Social Security, tax revision, and overhauling immigration policy, were killed outright or shelved.

Hardly anyone in Washington expects Bush to morph into a latter-day version of President Bill Clinton, who reacted to his party's loss of Congress in 1994 by supporting welfare reform, a balanced budget, and an immigration crackdown backed by Republicans.

Trench Warfare

Instead, many veteran Washington lobbyists fear trench warfare on Capitol Hill as the president fights Democratic efforts to roll back his policies and lawmakers jockey in advance of the 2008 elections.

John Podesta, Clinton's former chief of staff and currently president of the Center for American Progress, a Washington think-tank, said Bush's ability to find common ground on the domestic front may be limited by preoccupation with Iraq.

``Bush is now a foreign policy president, with Iraq being the 800-pound gorilla in the room,'' Podesta said. ``The debate over what to do there could dominate.''

After the election, Iraq could become a flashpoint -- or an opportunity. A commission headed by former Secretary of State James Baker, a Republican, and former Indiana Representative Lee Hamilton, a Democrat, is due to report to Congress on policy options in Iraq.

Policy Changes

The panel is certain to urge major changes in the White House approach to stabilizing Iraq. To the extent that it recommends specific benchmarks to measure a struggling Iraqi government's ability to restore order, it might provide the basis for a phased withdrawal of U.S. troops.

Duberstein calls the report a ``pivot point'' for testing a nascent spirit of cooperation. Baker's menu of policy changes ``could provide cover for Democrats and Republicans to work together and will be a test of the White House's willingness to find common ground,'' Duberstein said.

Other opportunities for cooperation with Democrats exist, but the tradeoffs could be brutal for a president caught between his desire for a positive agenda and the need to keep a less disciplined band of Republicans inside his tent.

For instance, Paulson has convinced Bush that a new drive is needed to curb rising spending for federal entitlements, programs that pay automatic benefits based on eligibility formulas.

Fiscal Fix

With baby boomers poised to retire at the same time that Medicare, Medicaid, and Social Security are being squeezed, economists say that some kind of big fiscal fix is overdue.

Even if he just dips a toe in the water by calling for a bipartisan study commission, Bush is creating a dynamic that exposes him to political risk.

Leading Democrats, among them former Treasury Secretary Robert Rubin, say that reining in entitlement programs requires tax increases. Few think that Bush, who has slashed taxes three times, could embrace such a recommendation.

``Reform of Social Security, or the other entitlement programs, is a really tall order,'' said Charles Black, a Republican lobbyist who consults with the White House. ``Democrats beat this kind of thing back when they were significantly weaker politically.''

Immigration

The White House may consider some overtures to Democrats on immigration policy. This year, Senate Republicans passed a bill with many of the elements that Bush wanted, but it sank under opposition from House Republicans, who preferred legislation calling for construction of a 700-mile security fence along the U.S.-Mexico border.

Democrats are generally more receptive than House Republicans to Bush's call for granting undocumented workers citizenship. That does not mean a deal on the issue would be easy, however. It would compel the president to butt heads with members of his own base, something he has been loath to do.

Still, some see a cause for optimism. A House controlled by Democrats could mean that Bush ``will have the opportunity to get the Senate bill through and claim victory,'' said Stephen Wayne, a government professor at Georgetown University in Washington.

Spending restraint offers another possible bridge between the parties. Two ideas being considered by House Democrats -- restoration of pay-as-you-go budgeting rules, which require an offsetting budget cut for many new spending programs, and steps to curb House members' ability to ``earmark'' money for programs in their district -- could gain acceptance by the White House, Duberstein said.

Energy Deal

Bush seems committed to further steps to move toward energy independence, a stance that could compel Congress to take another stab at an omnibus energy bill.

If the administration is prepared to deal by considering stiffer auto fuel-efficiency standards and new incentives for clean fuels, a compromise could come into focus.

However, some of the changes sought by the Democratic leadership could be a bridge too far for Bush and Republican lawmakers.

For instance, the insistence that Bush abandon plans for oil drilling in the Alaskan wilderness could drive a wedge between the president and House Republicans, as could new House Speaker Nancy Pelosi's demand that $2.6 billion in preferences for oil and gas drillers be cancelled.

Taxes and Trade

Bush's tax cuts don't start to expire until 2010, and incoming House Ways and Means Committee Chairman Charles Rangel says he has no intention of picking an early fight over them. Democrats and Republicans can better spend their time, Rangel says, by working together to ease the annual bite of the Alternative Minimum Tax (AMT).

On the trade front, Bush is committed to a new multilateral trade round and to signing regional free-trade pacts, a goal shared by a number of Senate Democrats. Prospects for trade expansion are clouded, though, by the arrival of a group of populist Democrats who question the payoff of globalization and want stronger worker and environmental protections written into future trade accords.

In the end, many Republicans suspect that Bush's desire to mimic former President Ronald Reagan -- who, in a second term marked by the Iran-Contra scandal and Republicans' loss of the Senate still managed to achieve a bipartisan overhaul of the tax code and several arms-limitation treaties with the then-Soviet Union -- will overwhelm the impulse to knock heads with opposition Democrats.

Much like Reagan, Bush will wind up ``thinking about his place in history,'' said Lee Edwards, a presidential historian at the Heritage Foundation, a Washington think-tank that favors limited government. ``He doesn't want the last two years to be total gridlock.''

To contact the reporters on this story: Catherine Dodge in Washington at cdodge1@bloomberg.net; Richard Keil in Washington at dkeil@bloomberg.net

Last Updated: November 8, 2006 12:45 EST