BAGHDAD — Iraqi forces aided by the U.S.-led coalition have retaken half the territory the Islamic State group once held in the country, a senior U.S. official said Wednesday during a visit to Baghdad.

Deputy Secretary of State Antony Blinken also announced $181 million to address a humanitarian crisis that has festered in Iraq despite progress on the battlefield. More than 3.3 million Iraqis remain displaced from their homes due to violence, according to the United Nations.

Despite a series of major defeats in recent months, IS still controls Mosul, Iraq’s second largest city. Iraq hopes to launch an operation to retake Mosul this year, which U.N. and U.S. officials say could displace another 1 million people.

Blinken said the way authorities handle the potential displacement in Mosul will be an important “test case” for lasting political reconciliation in the country. Iraq remains deeply divided, with many in the Sunni minority viewing the Shiite-led government with suspicion and ethnic Kurds in the north pursuing greater autonomy.

“The painstaking work of reconciliation and governance… will ensure that Daesh, once defeated, stays defeated,” Blinken said, using an Arabic acronym for IS.

The extremist group swept across northern and western Iraq in the summer of 2014, and at that time many Sunnis welcomed IS as an alternative to what they saw as the increasingly sectarian rule of then-Prime Minister Nouri al-Maliki.

At the height of its power, IS ruled a self-declared caliphate stretching across a third of Iraq as well as large swathes of neighboring Syria.