"The administration here is in much more serious budget trouble than everybody wants to talk about, and coming up against pretty big Republican pushback," said one of McChrystal's civilian advisors.
The report also encourages U.S. troops to confront corruption among local officials. U.S. troops in Iraq did this in the last few years, officials say, to some success.
"Corruption is perhaps more responsible to the insurgency than anything else," said one of McChrystal's aides. Closer living quarters will keep police and troops honest, the aide said, but troops will be given the task to identify and try to change dishonest local powerbrokers.
U.S. officials hope the shift in strategy helps calm an insurgency that has never been more violent. At least 48 U.S. troops and 26 additional troops from Britain, Canada, Poland, Belgium, Estonia, and France died in August, making this month and last month by far the deadliest of the war.
Gates said the increased casualties were expected.
"The fact that we're going into areas where the Taliban have basically been unchallenged for a number of years means that our casualties are going to be higher," he said.
Both he and the White House today warned that turning Afghanistan around would not be easy. Robert Gibbs, President Obama's spokesman, blamed the prior administration for neglecting the war and asked for patience.
"You can't under-resource the most important part of our war on terror, whether it's under-resourced with troops, whether it's under-resourced with civilian manpower, whether it's under-resourced with economic development funding -- and hope to snap your fingers and have that turn around in just a few months," Gibbs said.
ABC News' Gary Langer contributed to this report.