FALLUJAH: Government negotiators entered besieged city of Fallujah on Saturday to negotiate a ceasefire with the militants as the US offered truce. Street fighting erupted in Baghdad, and fierce battles raged in central Iraq, that left 40 Iraqis dead.

A US tank was set on fire on a highway west of the capital and locals said that was hit by a rocket-propelled grenade fired by a 10-year-old boy.

In Baqouba, north-east of the capital, gunmen attacked the government buildings and police stations, fighting US troops that killed around 40 Iraqis and wounded several Americans, said Capt Issam Bornales, spokesman for the 1st Infantry Division’s 3rd Brigade. Insurgents also fought US troops in Baghdad’s northern, mainly Sunni neighbourhood of al-Azamiyah.

The fighting began with simultaneous rocket attacks on late Friday on an Iraqi police station, the governor’s office and a compound housing the US military’s civil affairs office. Among those killed were at least 11 civilians, said Dr Fouad Hussein at Baqouba General Hospital. Thirty-five others were injured, he said.

The assailants opened fire with rocket-propelled grenades and rifles against the targets, sparking small fires in each location. Fighting quickly spread throughout the city. The fighting had tapered off by midday on Saturday, but shops remained closed and few residents were out on the streets. Local units of the US-trained Iraqi security forces did not show up for work at checkpoints and police stations.

Two US soldiers were killed in Baghdad, one when insurgents attacked a convoy transporting fuel, the military said. An Iraqi driver in the convoy was also killed.

Also, two American soldiers and a number of civilian contractors were missing after Friday’s convoy attack, Pentagon officials said, speaking on condition of anonymity.

Three Marines were killed previous day in Al Anbar province, west of Baghdad, the military said. Gunmen carrying automatic weapons and rocket-propelled grenades struck a tanker truck in a convoy in Abu Ghraib killing a soldier. The second soldier was killed in an attack using roadside bombs and small arms on Camp Cooke, a US base in northern Baghdad, the military said.

Several blasts rang out across central Baghdad and a column of smoke rose from near the heavily fortified "Green Zone" where the US-led administration in Iraq is based, Reuters witnesses said. A US army spokeswoman said at least one of the blasts had been a controlled explosion, but had no further details.

An Iraqi negotiating team said Iraqi militants in Fallujah will agree to hold ceasefire talks if the US Marines withdraw from the city. "They want to see US forces pull out to something like five km outside the city. No ceasefire can take place while the US forces keep pounding Fallujah," Qahtan al-Rubaie, a spokesman for the Iraqi Islamic Party, told Reuters.

Rubaie was speaking after members of his party, and other leaders from Baghdad met Fallujah religious and tribal leaders and government officials. "We will convey Falluja’s view to US officials either today or tomorrow," Rubaie told Reuters.

Earlier, US forces offered a ceasefire and unprecedented mediation talks to end a drive against Iraqi insurgents here.

Sporadic machine-gun fire and explosions echoed through the Fallujah city after the start of the ceasefire at noon, an AFP correspondent reported. A cloud of black smoke billowed and sirens wailed across the city as AC-130 gunships and warplanes roared above.

Brig-Gen Mark Kimmitt called on Fallujah’s insurgents to join a bilateral ceasefire. But he said that a third battalion of Marines had moved in around the city, joining two battalions totalling 1,200 troops and a battalion of Iraqi security forces already in place.

Iraqi kidnappers said in a tape aired on an Arabic television station they will kill a US hostage they’re holding unless US forces lift the siege of Fallujah. "Up to now your prisoner is being dealt with in the tolerant manner specified by Islamic law. Our one request is to break the siege of the city of the mosques (Fallujah) during the 12 hours from six o’clock on Saturday evening," a voice on a tape shown on Qatar-based Al Jazeera said.

The group further said that it was holding 30 foreign hostages and threatened to behead them. The group also said that three kidnapped Japanese hostages will be released within 24 hours, abandoning a threat to kill them, Al Jazeera said. "They will release them in 24 hours in response to a call from the Muslim Clerics Association," Al Jazeera said.

Two security agents from the German Embassy in Baghdad have been missing for several days and may be dead, German officials said. "It can’t be ruled out that they weren’t killed," an Interior Ministry spokesman said, on customary condition of anonymity. He would not provide further details. Earlier, a Foreign Ministry spokeswoman said that there was no evidence of a kidnapping.

The US army said that it had killed 12 insurgents in northern Iraq, destroying their truck with a missile after the guerrillas opened fire. "A patrol from 1st Battalion, 23rd Infantry Regiment was engaged by 12 assailants in a truck with a rocket-propelled grenade near Al Thubat," a US statement said. "The patrol returned fire with a missile, destroying the truck and killing all 12 assailants."

US forces also killed three people it said were insurgents after clashes broke out at a demonstration in front of Mosul city hall on Friday, the statement said. A dusk-to-dawn curfew was imposed in the city of Mosul after the clashes.

Five policemen, two assailants and a civilian were killed in two separate attacks in Mosul, police said. "Armed men opened fire on a patrol in the Wihda neighbourhood in the eastern sector of the city, killing two policemen and a taxi driver who was passing by," Colonel Salman Hassan told AFP.

Three other policemen and two assailants were killed when gunmen clashed with US troops and Iraqi policemen in a separate incident, said Captain Fawaz al-Sumaydai.

A top Iraqi Red Crescent official and his wife were also killed in apparent attack on their car in northern Iraq, spokeswoman for the International Committee of the Red Cross official said.

The head of the Red Crescent’s Irbil office and his wife were killed while in Mosul, Nada Doumani, spokeswoman of the Iraqi delegation of the ICRC, told The Associated Press office in Egypt in a telephone interview. Iyad Allawi, a prominent member of Iraq’s interim Governing Council, has stepped down as the head of the executive body’s security commission, his party’s newspaper said.

Baghdad daily, mouthpiece of the Iraqi National Accord, said he "renounces his mission at the head of the commission. "The commission does not have prerogatives to find effective solutions to the deterioration of the security situation" in the country, it said.

The paper said Allawi had submitted a letter to the current Governing Council president, Massud Barzani, in which he expressed "reservations on the measures adopted by the top civil administrator Paul Bremer and his armed troops."