KARBALA, Iraq — U.S. soldiers backed by tanks and helicopters battled fighters loyal to a radical cleric near a mosque in this holy city Wednesday, hours after Iraqi leaders agreed on a proposal that would end his standoff with the U.S.-led forces. As many as 25 insurgents were killed, the coalition said.

The cleric, Muqtada al-Sadr, urged fighters in Karbala to resist U.S. troops, comparing their struggle to the Vietnam War.

Half of the Mukhaiyam mosque, which had served as a base for al-Sadr's followers, was destroyed and seven hotels were ablaze after tanks opened fire and jets bombed the area. Most of the shops in Tal al-Zeinabiya, a central market, and three ambulances and two military vehicles also were destroyed.

American troops and al-Sadr's followers also fought overnight on the outskirts of the southern holy cities of Kufa and Najaf, and residents heard large explosions. One Iraqi was killed and four were wounded in Kufa, and four Iraqis were wounded in Najaf, hospital officials said.

"I appeal to the fighters and mujahedeen in Karbala to stand together so as none of our holy sites and cities are defiled," al-Sadr said, speaking at a shrine in Najaf, where he is holed up. "We are prepared for any American escalation and we expect one."

Asked how long his forces can fight, al-Sadr said: "Let remind you of Vietnam. We are an Iraqi people that has faith in God, and his prophet and his family. The means of victory that are available to us are much more than what the Vietnamese had. And, God willing, we shall be victorious."

It was the first time al-Sadr had appeared before reporters since his militia, Al-Mahdi Army, launched attacks on coalition troops in Baghdad and several other cities in early April. He said American forces were fighting Islam, and not terrorism in Iraq, and he referred to the abuse of Iraqi detainees by U.S. troops at Saddam Hussein's notorious Abu Ghraib prison.

"Look at what they have done. Look what the torture they have committed against our detainees. Could anyone who came to rid us of Saddam do this?" al-Sadr said in what was described as an open letter to the American people.

The new U.S.-appointed governor of Najaf, Adnan al-Zurufi, said Wednesday he believed his American backers will give another week to efforts to find a peaceful end to the standoff in Najaf before resolving it by force.

"If you assess U.S. military movements in terms of territorial gains, then U.S. forces a week from now will enter certain areas of the city that will in turn make the prospect of a peaceful settlement very weak," al-Zurufi said.

In Karbala, hundreds of Iranian and Iraqi pilgrims were trapped by the fighting in their hotels. Through the late afternoon, skirmishes continued with intermittent explosions and the rattle of small arms and heavy machine gun fire.

After one large explosion, Shiite militiamen chanted "Allahu Akbar," or God is Great, indicating they had hit a coalition target.

Pilgrims, including women in black veils, peered from the windows of their hotels, only to scramble inside with the crash of gunfire. The rickety, wooden market stalls, ordinarily crammed with shoppers, were deserted. Crowds of men gathered on rooftops to watch the distant battles.

One al-Sadr militiaman fired two mortar shells, then picked up the firing tube and scampered away shouting "I hate them, I hate them."

In other developments, the body of American civilian Nick Berg, who was beheaded in a gruesome video shown on an al-Qaeda-linked Web site, was en route Wednesday to Dover, Del., on an Air Force jet, a military spokesman said. The masked men who decapitated the suburban Philadelphia electronics businessman said they did so in retaliation for the abuse of Iraqis at Abu Ghraib.

U.S. soldiers raided houses Tuesday night in Sadr City, a Baghdad neighborhood where support for the cleric is strong, witnesses said. Three Iraqis were killed. At a funeral Wednesday for one of the men, mourners raised Iraqi flags and al-Sadr posters as they chanted: "Down, down USA!"

In the Karbala battles, American forces killed 20-25 militants, while seven coalition soldiers were wounded, a coalition official said on condition of anonymity.

A witness counted the bodies of 14 Iraqis lying in a main road in Karbala, and said U.S. snipers were targeting anyone who moved in the mostly empty streets.

Witnesses said American soldiers first tried to enter the Mukhaiyam mosque, but then traded fire with al-Sadr followers who had moved to the buildings around it. The mosque is less than a mile from one of the holiest Shiite sites in the world, the Imam Hussein shrine.

Polish Lt. Col. Robert Styrzelecki said by telephone from Camp Babylon, the Polish base on the outskirts of Karbala, that coalition forces found "huge amounts of mortar and artillery rounds, explosives and remote transmitters for detonating explosives." He did not say where the cache was found.

On Tuesday, Iraqi political and tribal leaders in Najaf said al-Sadr will end the standoff with American troops if the coalition postpones its legal case against him and establishes an Iraqi force to patrol the city.

However, the offer hinges on an agreement that U.S. forces pull out of the city and Kufa, and al-Sadr's militia lays down its weapons, the leaders said. Al-Sadr made a similar offer earlier this month.

On Wednesday, a senior coalition official said the coalition won't negotiate with al-Sadr over its demands that he face justice, and that his militia be withdrawn from all government buildings and disbanded. However, the official said on condition of anonymity that the coalition would welcome efforts by "individuals" to help fulfill its demands.

Al-Zurufi, the new Najaf governor, said he will ask the U.S.-led administration to defer murder charges against al-Sadr until after the Americans transfer power to an Iraqi administration June 30. However, the militias will have to disband and disarm, and police will take over security of the province, al-Zurufi said.

Al-Sadr has been holed up in Najaf since last month after U.S. authorities announced an arrest warrant against him in the April 2003 assassination of a moderate rival cleric.

Mansour al-Assadi, a senior tribal leader, said a proposed deal would require all armed groups to withdraw from Najaf to defuse rising tensions among rival Iraqi groups.

In exchange, murder charges against al-Sadr would be postponed until a permanent constitution is adopted next year, and he would be tried by an Islamic court.

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The Iraqi government due to take office June 30 will not be elected but appointed after consultations with U.N. envoy Lakhdar Brahimi, who is in Baghdad for meetings with Iraqi and American officials. Elections are expected by January.

Also Wednesday, gunmen fired on a car carrying Iraqi security forces north of Baghdad, killing one man and seriously wounding his brother, Iraqi authorities said. Two other members of the U.S.-backed Iraqi Civil Defense were hurt in the attack near the city of Baqouba.

In Samarra, also north of Baghdad, about 20 gunmen raided a police station Tuesday night, and the seven police inside fled. The attackers then detonated a bomb that destroyed the building and two police cars.

Baqouba and Samarra are largely Sunni Muslim towns that formed a core of support for Saddam Hussein's former regime.

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