US President George W Bush has named former CIA director Robert Gates as Defence Secretary to succeed Donald Rumsfeld.
Mr Rumsfeld handed in his resignation following dramatic victories by Democrats in the country's mid-term elections.
Mr Bush announced the developments after acknowledging that his administration's handling of the Iraq war played a major role in giving the Democrats control of the House of Representatives in yesterday's election.
The Democrats are also close to taking control of the Senate.
Mr Bush said he and Mr Rumsfeld agree it is time for new leadership at the Pentagon.
Mr Rumsfeld has said he decided to resign partly because of the changed political environment after yesterday's Congressional elections.
Speaking at the Pentagon, Mr Rumsfeld said it would be a different Congress, a different environment, moving towards a presidential election, and it struck him that this would be a good thing for everyone.
Although Mr Rumsfeld's resignation was announced this evening, President Bush told a news conference that he had been discussing the possibility of Mr Rumsfeld being replaced before Tuesday's election.
Mr Bush admitted that his policy on Iraq was 'not working well enough, fast enough'.
The US President also expressed his disappointment with the results of the Congressional mid-term elections.
Meanwhile, Democrat Jon Tester has defeated Republican Senator Conrad Burns in Montana, capturing an important seat in the party's bid to gain control of the Senate.
CBSNews.com and the Associated Press projected Senator Tester had unseated incumbent Burns, who was tainted by links to convicted lobbyist Jack Abramoff and whose campaign was marred by several gaffes.
The only Senate seat still undecided is in Virginia.
The Democrats have also won a number of state governorships.
Republican Senator John McCain said his party would have to work with the Democrats on key issues if it is to win back support.
White House spokesperson Tony Snow, just days after claiming that Democratic policies would invite terrorist attacks on the US, has adopted a more conciliatory tone in light of the Democratic gains.
Mr Snow said the Bush administration was now 'looking forward to working with Democratic leaders on the issues that remain foremost on the agenda'.
Pelosi to be first female House speaker
Nancy Pelosi, who will become the first female speaker in the House of Representatives, said the result had been a great victory for the American people.
The San Francisco representative, whose liberal views were targeted in Republican campaign advertisements, welcomed the advent of political change in the US.
She said her party would seek 'to lead the most honest, most open and most ethical Congress in history'.
One of the key Senate seats lost by the Republicans was in Pennsylvania where key Bush supporter Rick Santorum was beaten by Democrat Bob Casey.
In his concession speech, Mr Santorum - a keen supporter of the Iraq war - accepted that voters had not been receptive to the Republican message.
Angry Dáil exchanges over US results
There have been angry exchanges in the Dáil over the results of the US mid-term elections, with the Government being accused of facilitating atrocities in Iraq, and Socialist Party TD Joe Higgins being accused of anti-Americanism.
Deputy Higgins asked if the Government would now withdraw facilities at Shannon for what he called the 'Bush war machine', given the shift in support away from the US President, George W Bush.
The Minister for Finance, Brian Cowen, said he had 'no respect' for what he called Deputy Higgins's anti-Americanism, and that the Government would continue to support UN resolutions.
The European Commission's Ambassador to the United States has said it is in the interest of the rest of the world that Iraq makes a successful transition to a pluralist democracy.
John Bruton told the Seanad this morning that a solution to the instability in Iraq should involve neighbouring countries like Syria and Iran.
The former Taoiseach said the opportunity now exists for a range of interlinked settlements and he suggested that the Democrats' victory would not make an impact on US policy in Iraq in the short term.
