Fighting continued in Najaf late last night despite an earlier declaration that the Shia leader Muqtada Sadr had accepted a peace plan designed to end the two-week battle for control of the city.
In an unexpected development, Sadr sent a letter to a delegate attending the national conference of politicians in Baghdad saying that he was accepting peace terms laid down the previous day by a mission from the conference.
But amid serious doubts over whether his conditions for implementing the plan reportedly including a demand that US troops should withdraw would satisfy the interim Iraqi government, explosions continued around the old city. Police imposed a curfew for the first time. Shelling and automatic gunfire had earlier been clearly audible from points close to the old city after reports spread of the putative truce and at least one mortar was fired in the direction of a main police station.
Earlier, yesterday the armed insurgents occupying the mosque in Najaf, which contains the sacred Imam Ali shrine, were given "the next few hours" to lay down their arms or face a major assault that would "teach them a lesson they will never forget".
Rumours of a breakthrough began circulating among Iraqi delegates to the conference choosing a national assembly in Baghdad. The meeting was then read a letter from Sadr. It said he had agreed to the demands laid down in a peace plan taken to Najaf by a delegation from the conference which the cleric had refused to meet on Tuesday. The plan calls on Sadr to leave the mosque, disarm his militia and transform his Mehdi Army into a political party in exchange for amnesty.
"Muqtada al-Sadr has agreed on the conditions set by the national conference," said a Shia independent delegate, Safiya al-Suhail, as she read the letter. It said: "We call on the Iraqi government and the National Conference to participate in implementing what is proposed by Muqtada al-Sadr, otherwise everybody will bear the responsibility."
The warning of a full-scale assault was earlier delivered by the interim Iraqi Defence Minister, Hazem Shaalan, as the Baghdad meeting voted against attempting a second peace mission within 24 hours to Sadr. It came during fighting between the insurgents and US forces, whose tanks and armoured vehicles advanced steadily closer to the edge of the old city, which is controlled by the Sadr insurgents.
Mr Shaalan and the US Defence Secretary, Donald Rumsfeld, went out of their way to emphasise that Iraqi rather than American troops would enter the holy shrine in any military operation against Sadr's Mehdi Army, which has been based there for more than a week. Mr Shaalan said "the only American intervention" would be the securing of roads leading to the mosque compound and "aerial protection", the scope and method of which he did not define.
He added: "As for entering the compound, it will be 100 per cent Iraqis. Our sons in the national guard have been trained on the breaking-in operation."
While an early attack on Mehdi positions inside the mosque compound and other parts of the old city seemed likelier than at any time since peace talks broke down at the weekend, US forces issued a similar threat last week without carrying it out. One factor deterring US forces then was the fear of condemnation throughout the Muslim world and beyond if the Imam Ali shrine were to suffer serious damage.
Iraqi ministers and US commanders gave the appearance yesterday of being satisfied that enough well-trained Iraqi national guardsmen were available to enter the compound without requiring the provocative spectacle of US troops doing so. But even if the use of Iraqi forces were to reduce rather than eliminate such condemnation, an offensive still carries the risk of large-scale loss of life, particularly since the arrival at the weekend of some 2,000 unarmed Sadr supporters acting as "human shields".
This powerful deterrent to both sides against a full-scale assault appeared to fuel the reports last night that the crisis could be resolved, after a day in which Najaf medics reported that 29 people had been killed or injured.
Earlier, one of Sadr's senior aides, Ahmed al-Shalbany, said that Sadr's much-criticised refusal to meet the eight-member delegation that visited the city from Baghdad on Tuesday, had been because of "heavy shelling from the planes and tanks of US forces".
The US military insisted, however, that it had scaled down operations while the peace mission was seeking to meet the cleric.
Earlier yesterday another Sadr representative had fuelled expectations of a breakthrough by saying the insurgents' leaders had been "surprised" by the Defence Minister's threat because they thought they had agreed to the interim government's demands.
Sadr has made contradictory statements in the past, and a previous ceasefire with his Mehdi Army militia that ended an uprising two months ago collapsed two weeks ago.