WASHINGTON -- The Barack Obama administration has concluded that North Korean leader Kim Jong Il, still recovering from an August stroke, has initiated a political transition inside his reclusive state in which his brother-in-law and third son are emerging as key players in a newly assertive power structure.

This political shift in Pyongyang, senior U.S. officials say, has contributed to North Korea practicing an increasingly aggressive foreign policy. North Korea withdrew from diplomacy aimed at ending its nuclear-weapons...