Blackwater Worldwide, the company of mercenaries that ran amok in the Iraq war and gunned down civilians in an incident that brough worldwide condemnation and indictments against several of its operatives, could lose its license to operate in that war-torn country.

A report from the State Department’s Inspector General’s office says the company’s behavior is in conflict with the stated goals and values of the United States, which means it could further damage American credibility on the world stage.

Blackwater’s contract comes up for renewal after President George W. Bush leaves office. Bush is an avid fan of the mercenary operation and Blackwater CEO Erik Prince is a supporter and large political contributor to Bush and other Republicans.

But the administration of Barack Obama, not George W. Bush, will make the call on whether or not Blackwater has a future as a hired gun for the United States.

Reports The Associated Press:

The State Department faces serious challenges protecting U.S. diplomats in Iraq and may no longer be able to rely on Blackwater Worldwide to do the job, according to an internal report.

A report from the department’s inspector general says the agency must deal with the prospect that Blackwater — its main private security contractor in Iraq — could lose its license to work in Iraq. Officials say that means preparing alternative arrangements.

"The department faces the real possibility that one of its primary worldwide personal protective services contractors in Iraq — Blackwater (Worldwide) — will not receive a license to continue operating in Iraq," the recently completely report says.

A copy of the 42-page report, labeled "sensitive but unclassified," was obtained by The Associated Press on Wednesday.

Officials said the report is a prelude to a decision on whether to renew Blackwater’s Iraq contract, which expires next year. A recommendation on that is expected after an investigation is completed into last September’s incident in Baghdad’s Nisoor Square in which Blackwater guards killed 17 Iraqis, they said, requesting anonymity because the report is not public.

Five Blackwater guards have been indicted by a U.S. federal grand jury on manslaughter and other charges stemming from that incident. The company was not charged.

The State Department had no immediate comment on the report itself, but deputy spokesman Robert Wood said that after the Nisoor Square probe is finished, officials would look at "whether the continued use of Blackwater in Iraq is consistent with the U.S. government’s goals and objectives."

A decision on how U.S. diplomats in Iraq are to be protected will be left to the Obama administration, which will be in place when Blackwater’s contract comes up for renewal in spring.

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