Every country needs a large enough army to defend itself. If we don't allow Iraq to have its own army, we'll have to station troops there permanently to protect them. Even Japan was eventually allowed to have a "self-defense force" after WW2. The longer American troops are occupying Iraqi soil, the more agitated Iraqi and Arabs will be, and the more money and personel various terrorist organisations will be able to get.
For those who insist on a more sinister angle... If America is being transformed into an "Empire", we are going to need client states to fight our wars for us. So, we are going to arm Iraq, keep them on a leash, and use them if we have a beef with another state in the region. Jerry Pournelle talks about this a bit more
here.