Democrats wound down the first half of the 110th Congress this week claiming they had made a "down payment" on the "new direction" they promised America when they took control of the House and Senate this year.

Results this year include the first minimum wage increase in 10 years, the biggest hike in college aid since the GI bill, lobby and ethics reform, and an energy policy overhaul that leverages conservation.

Although the signature issues of the new majority – changing course in the Iraq war and pledging to pay for all new spending and tax cuts – hit major setbacks this week, Democrats are quietly shifting the agenda on Capitol Hill on issues ranging from oversight to domestic priorities.

"Although the way the Democrats are going out is not pretty, the most significant thing that's happened is the resurgence of oversight," says Norman Ornstein, a senior fellow at the American Enterprise Institute. "That means not just 'gotcha' stuff, although it does include a very significant amount of investigative work. It's also genuine oversight of programs and agencies, and a significant part of it is coming in a bipartisan fashion."

Congressional probes into the firing of eight US attorneys last year helped force the resignation of Attorney General Alberto Gonzales this year. Oversight of the war in Iraq, including the role of private contractors, ramped up considerably under Democratic control of Congress.

"Republicans didn't do enough oversight of the war. It didn't take much for Democrats to do better," says eight-term Rep. Michael Castle (R) of Delaware.

In the final standoff with the White House this week over funding for fiscal year 2008, Democrats backed off their goal of $22 billion in additional spending and largely accepted the President Bush's spending caps. But they also reworked spending requests to reflect their own domestic priorities. This included $767 million more than the president requested for K-12 education, $1.7 billion more for Pell Grants for college costs, $607 million more for medical research, $1.2 billion for local law enforcement, and $1 billion to make bridges safer.

But these victories were eclipsed by big losses on top priorities of the new majority. Congress wound down the year with votes to give Mr. Bush $70 billion in war funding, without conditions, and to shield at least 22 million taxpayers from the Alternative Minimum Tax (AMT), without finding the $50 billion to pay for it.

Both decisions were made under the gun of deadlines that Democrats could not control. Without congressional action on emergency funding, the Pentagon said it would have had to begin sending out furlough notices to some 100,000 civilian employees this week.

House Speaker Nancy Pelosi had pledged to allow no more votes on war funding this year, after the White House rejected war funding with conditions. In the end, the Pentagon's pink slips would have been "too hard for some people to explain in certain parts of the country," she said in a briefing with reporters on the eve of the vote.

Reluctantly, House Democratic leaders allowed a floor vote on the measure, which the Senate had attached to the $555 billion domestic spending bill for fiscal year 2008. It passed Wednesday by a vote of 272 to 142, with more than half of House Democrats, including Speaker Pelosi, voting against it.

But Democrats note that the $70 billion measure is still far short of the nearly $200 billion that Bush requested last spring. "Even the Republicans in the Senate, who stick so closely with the president on the issue, have decided to put him on a short leash," Pelosi said. "People want to hold him more accountable."

Similarly, time constraints played a role in forcing Democrats to yield ground to the White House over the AMT fix. Bush said that he would veto any tax increases to pay for the AMT patch, and Republicans backed him. Without action on the AMT before Congress recessed for the holidays, some 22 million taxpayers would face an average of $2,000 in higher taxes – and at least 50 million taxpayers would face delays in processing 2007 tax returns, the Treasury Department says.

"It's a sad day," said Rep. Allen Boyd (D) of Florida, a co-chair of the fiscally conservative Blue Dog Coalition, commenting on the Senate's failure to pass offsets for the AMT, forcing the House to go along. "There are those of us who want to pay the bills and be fiscally responsible, but we can't get it by the Senate. We can't change course until we get a new president."

Senate Republicans mounted a record 61 filibusters this year that derailed many of the majority's priorities. But Democrats say these losses could help increase their majority in the 2008 elections – and ensure that a Democrat wins the White House.

"I want to assure you that what has happened this year has paved the way for much more dramatic change, because the Republican senators are filibustering themselves out of their seats," says Sen. Charles Schumer (D) of New York, who directs the Democratic Senatorial Campaign Committee.