The Turkish government has said it will not allow US air force to use its air bases military but will allow overflights to Iraq.
The announcement effectively brings an end to Washington's efforts to deploy thousands of US troops on Turkish soil.
Prime Minister Tayyip Erdogan said US warplanes would be allowed to overfly Turkish airspace but would not be allowed access to air bases even for refuelling.
The Turkish proposal, expected to be voted on in parliament tomorrow, falls far short of original discussions on allowing up to 62,000 US troops to use the country to launch an assault on northern Iraq.
It means Turkey will forfeit a US aid package that was to have awarded the country up to $30 billion in US grants and loans.
Mr Erdogan did not mention what use the United States could make of its warplanes at the Incirlik airbase, whichis currently used by around 50 US and British jets to patrol the no-fly zone in northern Iraq, introduced at the end of the 1991 Gulf War to protect the region's Kurdish population from attacks.
However, a source close to the Turkish government said they will not be permitted to drop bombs on Iraq during a war.
Mr Erdogan said Turkey's talks with the United States were now only on military and political issues, not economic, and added the parliament resolution would not give Washington the right to use Turkish airbases.
A senior US official said Ankara's allowing the United States to use Turkish airspace and bases to fly into Iraq would not justify any of the billions of dollars in aid the United States had pledged in an earlier plan to station ground troops for a "northern front" against Iraq.
With US troops making final preparations to invade Iraq, a top-level meeting in Ankara had briefly revived flagging hopes in Washington of using Turkey as a launch pad to accelerate victory over Baghdad. A "northern front" via Turkey's southern border may also have lessened US casualties.
Ankara has also agreed with Washington that Turkish troops be allowed into northern Iraq during any US invasion to set up a buffer zone against any exodus of Iraqi refugees to Turkey.