NATO will permanently stop the training program mission in Iraq and withdraw all of its soldiers by Dec. 31.
Iraqi Prime Minister Nouri al-Maliki requested that the alliance extend the eight-year-long training mission. But recent talks stalled over NATO's request for legal immunity for its foreign trainers.
Iraqi leaders insisted that all NATO troops would be subject to Iraq's laws and judicial system.
The United States and NATO feared that servicemen might not receive fair trials in a county where anti-Western sentiment runs high.
A NATO statement said the North Atlantic Council, the military alliance's governing body, decided Monday to end the training mission because "agreement on the extension of this successful program did not prove possible despite robust negotiations conducted over several weeks."