An AC-130 gunship viewed through night-vision (top) and two of the electric M61 Vulcan cannons poking out the side.

Blasts and gunfire went on steadily for more than half an hour in sustained fighting, apparently in the northern Jolan district, a poor neighborhood where Sunni insurgents are concentrated.

Flames could be seen rising from building, and mosque loudspeakers in other parts of the city called for firefighters to mobilize.

The fighting erupted as a two-day extension to a cease-fire ended. Earlier in the day, U.S. aircraft dropped leaflets in the city of 200,000 people calling on insurgents to surrender.

'Your Last Day Was Yesterday'

"Surrender, you are surrounded," the leaflets said. "If you are a terrorist, beware, because your last day was yesterday. In order to spare your life end your actions and surrender to coalition forces now. We are coming to arrest you."

Fighting in the same neighborhood on Monday night killed one Marine and eight insurgents, and tank fire destroyed a mosque minaret that U.S. commanders said insurgents were using as sniper's nest.

An Iraqi waits for permission by U.S. Army soldiers to enter Fallujah, 37 miles, (60 kms) west of Baghdad, Iraq , Tuesday, April 27, 2004. (AP Photo/Muhammed Muheisen)

U.S. troops fought militiamen overnight near Najaf, killing 64 gunmen and destroying an anti-aircraft gun. An American soldier was killed Tuesday in Baghdad, raising the U.S. death toll for April to 115, the same number lost during the entire invasion of Iraq last year.

The battle outside Najaf was one of the heaviest with the militia as U.S. troops try to increase the pressure on gunmen loyal to radical cleric Muqtada al-Sadr. U.S. troops moved into a base in Najaf that Spanish troops are abandoning, but promised to stay away from the sensitive Shiite shrines at the heart of the southern city.

On Sunday, the U.S. military had announced a two-day extension to the fragile cease-fire in Fallujah to give political efforts a chance, backing down from threats to launch an all-out assault on the city to root out insurgents. Brig. Gen. Mark Kimmitt had said there was no ultimatum for a launch of an assault if political efforts were not showing results.

"We don't think deadlines are helpful," Kimmitt said Tuesday.

Earlier Tuesday, Marines were pushing ahead with training for a key part of the political track, the introduction of U.S.-Iraqi patrols into Fallujah.

As the United Nations prepared to discuss the form of a caretaker government due to take power June 30, U.S.-appointed Iraqi leaders complained that the administration wouldn't have real sovereignty as promised by American administrators for months.

"I think the sovereignty will be weak and not complete," said Mahmoud Othman, a member of the Governing Council. For "the security situation, there will still be the United States."

He expressed worries there would be limits as to what laws the Iraqis can pass. If the government can't make laws or provide security "it will not be real sovereignty," he said. "The less sovereignty there is, the less the possibility that the government will be able to work and achieve its tasks."

U.N. envoy Lakhdar Brahimi has proposed that the Governing Council be dissolved and caretaker government made up of nonpartisan experts be created to run Iraq until elections in January. Washington has said that since Iraqi security forces are still not able to fight insurgents, U.S. forces will hold security powers even after the handover.

Ahmad Chalabi, a council member and close American ally, said he was demanding from top U.S. administrator L. Paul Bremer that the coming government be given strong roles on both the security and political fronts.

"We tell him that Iraqis should have a bigger role in security. We tell him that Iraqis should have a bigger role in taking financial decisions. We tell him that Iraqis should have a role in running the Iraqi reconstruction fund," he told the Arab television station Al-Arabiya

John Negroponte, nominated to be ambassador to Baghdad, said at his Senate Foreign Relations Committee hearing that Iraqis would have "a lot more sovereignty than they have right now" after the June 30 handover, but the United States would still have a key role in providing and overseeing security, and the caretaker government wouldn't be able to make laws.

Negroponte said the focus of the transitional government would be to organize elections, and the cabinet ministries would carry out the government's day-to-day operations.

White House spokesman Scott McClellan said there was "ample precedent for self-imposed limits on authority of interim, caretaker governments, such as likely to be the case here in this first phase of Iraq's transition to democracy."

Visit to Saddam

Also Tuesday, a Red Cross team visited Saddam Hussein to see his conditions in U.S. custody, Kimmitt said, but he refused to say where the visit took place. It was the first since the Red Cross visited the ousted Iraqi leader in February.

The battles in the south Monday evening took place on the east side of the Euphrates River, across from Kufa and Najaf, Kimmitt said.

The first came in the afternoon, when Shiite militiamen opened fire on a U.S. patrol, and seven insurgents were killed. Hours later, a M1 tank was attacked with rocket-propelled grenades, triggering a heavy battle in which warplanes destroyed an anti-aircraft gun belonging to the militia, and 57 gunmen were killed, Kimmitt said.

Najaf hospitals listed 37 dead, all young men of fighting age, suggesting they may have been militiamen. Sheik Amer al-Husseini, an official at Sadr's office in Baghdad, said 25 were killed. He did not say how many of the casualties were militiamen.

Night video taken by the Associated Press Television News between Najaf and the nearby town of Kufa showed U.S. Army helicopters flying low over smoke rising from an area in the distance amid flashes of gunfire.

An al-Sadr aide in Najaf, Mustaq al-Khafaji, accused Americans of trying to advance toward Kufa. "We will face the Americans whenever they show up," he said.

U.S. authorities have vowed to capture al-Sadr and uproot his militia, the al-Mahdi Army, which launched a bloody uprising at the beginning of April.

About 2,000 troops are deployed outside Najaf, but the military is having to tread carefully. Any action that even brings the possibility of harm to the sacred Imam Ali Shrine at its heart could turn the limited al-Sadr revolt into a widespread uprising by Iraq's Shiite majority.

'Mosques' Exploited as Forts

Bremer heightened warnings about the reported stockpiling of weapons in "mosques, shrines and schools" in Najaf.

"The coalition certainly will not tolerate this situation," Bremer said in a statement to residents of Najaf.

About 200 soldiers on Monday moved into a base that Spanish forces are abandoning in Najaf.

Spanish Appeasers Run Home

In Madrid, Prime Minister Jose Luis Rodriguez Zapatero said Spain has completed the withdrawal of its troops, recalling his campaign pledge to bring them home unless the United Nations took military and political control of the occupation.

The Baghdad attack Tuesday killed a U.S. soldier and wounded another in the Shiite neighborhood of Sadr City, a stronghold of al-Sadr's Al-Mahdi Army militia, Kimmitt told reporters.

The death brought to 115 the number of U.S. troops killed in combat in the past 27 days, the same number of Americans killed during the two-month invasion of Iraq that toppled Saddam.

Meanwhile, Bulgarian President Georgi Parvanov said his country's troops were "not prepared" for the kind of fighting they were doing in Iraq and needed "immediate and substantial military backup" from the coalition.

Speaking in the Bulgarian capital of Sofia after a visit to the 485-member contingent Sunday, Parvanov said he wants the troops be relocated to a new camp outside Karbala by June 30. Karbala has been the scene of recent heavy fighting by al-Sadr's followers.

British Prime Minister Tony Blair said Britain had no plans to send more troops to Iraq.

"The advice that we have now is that we have sufficient troops to do the job," Blair said at a news conference. Britain has 7,500 troops in southern Iraq.

© 2004 Associated Press