BAGHDAD (Reuters) - Karim Sahib sits fuming in a traffic jam in downtown Baghdad.

"I've been stuck here for an hour and it looks like it'll take me another hour to get out of here," he groaned, mopping sweat from his brow in the searing heat. "The streets are in a mess without traffic police."

The gridlock is a sign of a city struggling back to life more than seven weeks after U.S.-led forces toppled Saddam Hussein and a symptom of the chaos that ensued.

For the moment, Baghdad drivers have decided that freedom means anarchy. They ignore one-way signs and the few working traffic signals. To escape jams, they drive on the pavement.

Many Iraqis are relieved that Saddam's 24-year rule is over but horrified by postwar lawlessness and the breakdown of water, power and health services, especially in the capital.

Some are grateful to the United States, but do not feel free while foreign forces rule their country. All are desperate to see their lives change for the better after three wars in two decades and nearly 13 years of crippling U.N. sanctions.

Electricity and water supplies have improved, but power cuts are frequent and, especially in outlying districts, some people resort to hauling dirty water from the Tigris River or filling jerry cans at public standpipes.

In the sprawling Shi'ite Muslim township once known as Saddam City, renamed Sadr City by residents, piles of rubbish strew the dusty streets of closely packed dwellings. In some places, raw sewage flows through unpaved streets.

Living conditions here were dismal before the U.S.-led invasion, partly because Saddam's Sunni-dominated government had little interest in Shi'ite welfare. Some Shi'ite clerics have organized work teams to clean up the streets.

DWINDLING HOPES

"We hoped our lives would be better after the fall of Saddam, but things just seem to get worse every day," said Hameed Hashim, a teacher at a Sadr City primary school.

"I used to have hope, but I can no longer believe we will be saved. No one cares for us."

With most factories, businesses and government offices still closed, many Iraqis fight a daily battle for survival.

Aptly, "Survival" is the name of a new metal sculpture that stands on the plinth where U.S. troops dragged down Saddam's statue in an enduring image of his overthrow on April 9.

"It is hard for us to live," said Ghaniya Salim, the wife of a street vendor. "We will run out of cash if it stays like this for another month."

The 43-year-old mother of five struggles to find the 100,000 dinars ($75) she needs for monthly food and rent. "I sew clothes to supplement my husband's pension," she said.

While life may be less grim in other parts of the country, people in Baghdad are acutely aware of how their city has degenerated -- and readily blame their temporary rulers ensconced in a vast palace compound on which Saddam lavished millions of dollars.

"The Iraqi people will rise against the Americans if they don't restore normal life fast," said Ali Amin, an engineer.

More than 400,000 Iraqis lost their jobs last week when the United States dissolved the defense and information ministries, the armed forces and most security agencies in a move aimed at breaking links with Iraq's Baath Party past.

"It's not the right time for this decision," said Hana Hamza, wife of an army captain who has lost his 300,000 dinar ($215) monthly wage. "The army had not been paid since March. Like others, we depend on the salary to live."

For many, lawlessness is the overriding concern.

"We expected chaos and security problems after the fall of Saddam, but we hoped it would not last," said Imad Hassan, a teacher, as he bought vegetables from a street stall. "The Americans have to do something to restore security."

Hassan recognized that Saddam's bleak legacy still loomed over the capital's 5 million people and their hopes for a decent life. "Saddam ruled Baghdad with an iron fist, so when he vanished, everything broke down," he said.

"This is the price of freedom that we have to pay."