A war spending bill failed to clear the Senate on Friday, days after making it through the House.
The $50 billion bill to fund the wars in Iraq and Afghanistan was attached to a Democratic proposal to require the troops to begin coming home.
The Senate's 53-45 vote fell seven votes short of the 60 needed to advance.
Senate Majority Leader Harry Reid said the only way to get troops the money was to approve the restrictions outlined by Democrats.
"Our troops continue to fight and die valiantly, and our Treasury continues to be depleted rapidly, for a peace that we seem far more interested in achieving than Iraq's own political leaders," the Nevada Democrat said.
The vote came after the Senate also rejected a proposal from Republicans that would continue to fund the war without any contingencies.
The Republican proposal received even less support, garnering just 45 votes — 15 short of what's needed — and 53 against it.
Republicans charged that Democrats were being irresponsible.
"We need to get our troops everything they need," said Senate Republican Leader Mitch McConnell from Kentucky. "We need to get it to them right now."
Reid and House Speaker Nancy Pelosi (D-CA) had said earlier in the week that they would delay, until January, sending President Bush a spending bill this year if Congress didn't pass it with the conditions for troop withdrawal.
But holding off sending a war-spending bill until after returning from holiday break is bound to deepen the Democrats' rift with the White House on the war because the Pentagon would be without means.
The Pentagon has said it would have to lay off civilian workers to deal with any shortfall.
Defense Secretary Robert Gates said Thursday that unless Congress passes funding for the war, he will direct the Army and Marine Corps to begin developing plans to lay off employees and terminate contracts early next year.
Democrats don't seem to be swayed, responding that the Pentagon can eat into its $471 billion annual budget without being forced to take drastic steps.
"The days of a free lunch are over," said Sen. Chuck Schumer (D-NY).
At the White House on Friday, deputy press secretary Tony Fratto said: "We'd rather see the Department of Defense, the military planners and our troops focusing on military maneuvers rather than accounting maneuvers as they carry out their mission in the field."
Gates has said he has the flexibility to transfer only about $3.7 billion, which is one week's worth of war expenses.
From NPR reports and The Associated Press