NAJAF, Iraq - Fighters loyal to rebel cleric Moqtada al-Sadr were firmly in control of Najaf's Imam Ali mosque on Saturday, defying efforts by Iraq's U.S.-backed government to end a radical Shi'ite rebellion.

Bring those Americans here to fight hand to hand. They are cowards. They stay thousands of feet away in their airplanes. They are scared, they know we will slaughter them.

Al-Sadr militiaman

Militiamen brandished weapons around the mosque, the center of a two week confrontation with U.S. forces that has helped drive oil prices to record highs and has presented the interim government with is biggest crisis yet.

"Bring those Americans here to fight hand to hand," said one militant, biting his finger for emphasis. "They are cowards. They stay thousands of feet away in their airplanes. They are scared, they know we will slaughter them."

Aside from sporadic exchanges of gunfire and a tank firing a few shells, Najaf was relatively calm on Saturday morning.

Holding out hope for a peaceful resolution, one of Sadr's top aides said the rebel leader wanted to hand over Iraq's holiest Shi'ite Muslim shrine to Ayatollah Ali al-Sistani, the majority Shi'ite country's most influential cleric, and that talks on the mosque's future had begun.

"We would like to hand over the shrine to the religious establishment which has the right to control it," Sheikh Ahmad al-Sheibani told reporters. "It is only natural that Ayatollah Sistani should accept it."

Sistani, a moderate cleric who usually lives in Najaf, is now in Britain recovering from surgery.

But Sadr's aide later added that Sadr's militia would continue to guard the mosque after any handover, precisely the outcome that the two-month-old government has vowed to prevent.

"The Mehdi Army will continue to defend the shrine and Najaf, all of Najaf because it is a holy city," Sheibani said. "The Americans will not be allowed into Najaf."

Sheibani said no time had been set for a handover of the mosque and called on Prime Minister Iyad Allawi's government, which had at one point threatened to storm the mosque, to pursue a peaceful solution to the crisis.

"TRAITORS"

A teenager hacked with a pick at a block of ice to help cool Sadr's fighters, who danced and yelled slogans vilifying Allawi, who has called for them to lay down their weapons and leave the golden-domed mosque.

"We are winning, we will win over Iyad Allawi and the traitors collaborating with the Americans," they chanted.

Some held banners that said: "Where is the bullet that will grant me martyrdom?"

Sheibani said Sadr had agreed to hand over the keys to the shrine to Sistani's aides, but did not say when. Such a handover would be largely symbolic if Sadr's fighters remained in place in and around the mosque, where they have been fighting off efforts by U.S. and Iraqi government forces to dislodge them.

Sadr's uprising has fueled fears of disruption to Iraqi oil production and has helped push world crude prices to new highs. U.S. light crude hit a new record of $49.40 a barrel on Friday, before slipping back to close just below $48.

Confusion over control of the mosque swirled on Friday as the revolt, in which hundreds have died, entered its third week. The Interior Ministry said police had entered the shrine and arrested hundreds of fighters without firing a shot, a claim quickly denied by Sadr's aides.

A bloodless seizure of the mosque would have been a big political victory for Allawi. Since taking over from U.S. occupiers on June 28 he has struggled to end an insurgency and the Sadr-inspired Shi'ite rebellion in eight cities.

Iraq's Health Ministry said on Saturday at least 21 Iraqis had been killed and five wounded in Najaf over the past 24 hours.

The U.S. military said insurgents fired a rocket-propelled grenade at a U.S. military vehicle in southern Baghdad on Saturday, killing one soldier and wounding two others.

In a separate attack, two U.S. soldiers were killed and three wounded on Friday by a roadside bomb near the city of Samarra, some 60 miles north of Baghdad.

The attacks brought to 711 the number of U.S. troops killed in action in Iraq since the U.S.-led invasion last year. One Polish soldier was killed and six wounded on Saturday when a booby-trapped car exploded next to their convoy near the town of Hilla, an army spokesman said.

The soldier's death brings the number of Polish fatalities in Iraq to 14 since Poland took charge of the 8,000-strong multinational force in south-central Iraq last September.

© Copyright 2004 Reuters Ltd

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