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Fierce fighting erupts in Najaf
Fierce clashes have erupted between US forces and Iraqi militants loyal to Shia cleric Moqtada Sadr in the holy city of Najaf.
Tanks and troops moved into a cemetery near a holy shrine and traded fire with fighters sheltering among the tombs.
Mr Sadr appeared in nearby Kufa, where he delivered a fiery sermon condemning the US and UK.
In Baghdad, the US military has begun releasing more than 300 inmates from Abu Ghraib jail.
An aide to Iraq's most influential Shia leader, Ayatollah Ali al-Sistani, called on both the US military and Mr Sadr's forces to leave Najaf. Ayatollah Mohammad Baqer al-Mohri told Reuters news agency that the fighting was spreading fast and he feared for the holy sites and Ayatollah Sistani's safety.
US troops fired cannons and machine-guns at Shia militants sheltering in the sprawling cemetery, about three kilometres (two miles) from the Imam Ali Shrine, close to where Mr Sadr has taken sanctuary.
Fighters, who have apparently been making use of the graveyard to mount hit-and-run attacks on US forces, responded with rocket-propelled grenades and mortars.
Thick black smoke was seen rising above the cemetery - one of the largest in the world - while sporadic gunfire could be heard across the city.
The BBC's David Willis in Baghdad says the Americans have consistently said they would not encroach on the Imam Ali Shrine, but in recent days they have said their patience is wearing thin.
The Associated Press news agency reported that four small holes, apparently caused by machine-gun fire, could be seen in the shrine's golden dome.
Chief doctor at Najaf hospital, Faysal Jubayr Awdah, told al-Jazeera television that US forces had fired at civilians.
He said 13 people had been hurt and there were reports of dead bodies in the streets.
American tanks blocked off roads between Najaf and Kufa in an apparent attempt to prevent Mr Sadr from reaching Kufa, but the cleric nevertheless appeared in the town and delivered an angry sermon at Friday prayers.
He described US President George Bush and UK Prime Minister Tony Blair as "the heads of tyranny" who ignored the suffering of Iraqis.
Witnesses also reported gunfire in the city of Karbala, about 50 kilometres (30 miles) north of Najaf.
Reuters quoted hospital sources as saying at least four Iraqis were killed in clashes there overnight between US forces and militants loyal to Mr Sadr.
Mr Sadr, who is wanted by the US in connection with the assassination of a rival Shia cleric, launched an uprising against coalition forces last month.
In a separate development, the chief US administrator in Iraq, Paul Bremer, told a gathering of Iraqi officials in Baghdad on Friday that the US would leave if asked by the incoming Iraqi provisional administration.
"I don't think that will happen, but obviously we don't stay in countries where we're not welcome," he added.
The US military in Baghdad began releasing hundreds of prisoners from Abu Ghraib prison on Friday.
The first busload of detainees left the jail in the early hours of Friday.
The prison has been at the centre of a scandal after photographs emerged showing American guards abusing Iraqi inmates.
The releases are part of a plan to reduce the prison's population from its current level of about 4,000 inmates to about 1,500.
Most of those inside Abu Ghraib have been held without charge, some for many months.