WASHINGTON DC (UPDATE 3) - President Barack Obama will name Leon Panetta, a veteran Washington politician and current CIA director, as his Defense Secretary as he resets his national security team ahead of the 2012 presidential campaign and a battle over the Pentagon budget.
U.S. officials also said on Wednesday that Obama would nominate General David Petraeus, who is running the war in Afghanistan after leading the campaign to quash insurgency in Iraq, to replace Panetta at the CIA.
Trouble-shooting diplomat Ryan Crocker, who previously served as ambassador to Iraq, Pakistan, Syria, Kuwait and Lebanon, will be named as ambassador to Afghanistan.
The changes are expected to be announced on Thursday.
The long-anticipated overhaul could have broad implications for the Obama administration, which is pursuing deeper defense spending cuts in the face of a yawning budget deficit and will start withdrawing troops from Afghanistan this July.
Panetta is a Democratic party insider seen as close to Obama who could be more receptive to deeper defense spending cuts than outgoing Defense Secretary Robert Gates, a holdover from the Bush administration.
Panetta, who turns 73 in June, is a former U.S. representative from California who was chairman of the House Budget Committee. He was former President Bill Clinton's budget director, then chief of staff.
As well as starting the withdrawal from Afghanistan, the United States is set to pull U.S. forces out entirely from Iraq by the end of 2011, while the future course of its campaign in Libya remains unclear.
The White House declined comment on the expected changes, as did the Pentagon. White House spokesman Jay Carney said only that "we'll have a personnel announcement for you tomorrow."
Gates' clout among Republicans helped shield Obama from early criticism of his handling of war policy, a political asset that the president will be hard pressed to duplicate as he heads into the 2012 presidential campaign.
Officials said on Wednesday Petraeus had left Afghanistan and was on his way to Washington and was was expected to arrive before the White House's Thursday announcement.
By choosing Petraeus, the commander of U.S. and NATO forces in Afghanistan, Obama advances perhaps the U.S. military's most famous general and a hero among Republicans to one of the most important and difficult posts to fill in his administration.
Petraeus, 58, is credited with pulling Iraq from the brink of civil war after the 2003 U.S. invasion before he assumed command of U.S. and NATO forces in Afghanistan.
Before word of the reshuffle broke, some Washington insiders suggested the White House wanted a high-profile position for Petraeus to ensure he would not be tapped by Republicans to challenge Obama next year, perhaps as a vice-presidential choice.
One U.S. official said Lieutenant General John Allen, deputy commander of U.S. Central Command, would succeed Petraeus as head of the Afghanistan campaign.
Reporting by Mark Hosenball, Steve Holland, David Morgan and Phil Stewart; Editing by David Storey