A nighttime clash that killed two U.S. soldiers and at least one Iraqi in a teeming Shiite Muslim (search) slum raised tensions Friday between the American occupation force and the country's religious majority.

The Americans said their troops were lured into an ambush, but the Shiites maintained that U.S. soldiers opened fire first when they approached radical cleric Muqtada al-Sadr's (search) headquarters in the Sadr City (search) slum.

The clash late Thursday, which wounded at least seven Iraqis and two U.S. soldiers, drew an angry reaction from Iraq's Shiites. That could mean trouble for coalition forces, because the Shiite population in Iraq has shown patience with the American occupation so far, evidently feeling it had much to win from cooperating.

A clash with Shiites could open a second front for troops already facing regular attacks in the Sunni heartland of central Iraq where Saddam Hussein drew his greatest support. Still, al-Sadr has very little support among the mainstream Shiite clerical leadership.

The bloodshed came just 12 hours after a mysterious car bombing killed 10 people at a nearby police station in Sadr City, where al-Sadr has taken a stand against the U.S. military occupation and deployed his own armed force.

Sheik Abdel-Hadi al-Daraji, an al-Sadr aide, claimed the Americans were approaching al-Sadr's headquarters and opened fire first in the Thursday night attack.

He accused the Americans of trying to drive a wedge between Shiites and Sunnis, and claimed the U.S.-led coalition was responsible for "manufacturing crises and trying to create havoc." But he stopped short of calling on Shiites to take up arms against the Americans.

The U.S. military said a 1st Armored Division squad riding in three Humvees was ambushed at about 8 p.m. Thursday while on routine patrol in the slum. U.S. Army spokesman Lt. Co. George Krivo had no comment about the claim that the U.S. soldiers had approached al-Sadr's headquarters.

"A group of people, civilians, met with U.S. forces and said, `Please come in, we need to show you something important,"' Krivo said. When the soldiers left their vehicles and followed the Iraqis, they came under small arms and rocket-propelled grenade fire, he said. Homemade bombs were also detonated.

An Army quick reaction force helped extricate the patrol, Krivo said. He would not go into detail about what happened next, but suggested the encounter lasted two hours and that he "would not characterize (it) as a raid."

Krivo said the U.S. military would not change its policy of patrolling the heavily populated Shiite slum.

Security was tight during Friday prayers, with residents loyal to al-Sadr blocking streets leading to the main mosque. Guards were stationed on rooftops and around the 10,000 faithful who attended the sermon and prayers.

Afterward, there was a funeral procession for what were said to be two Iraqis killed in Thursday's clash.

"America claims to be the pioneer of freedom and democracy, but it resembles, or indeed is, a terror organization," al-Daraji, the al-Sadr aide, told the congregation. "The Americans may have forgotten that the real power rests with God and not with the wretched America."

Staff at al-Chawader Hospital in Sadr City said one Iraqi was killed in the clash and at least seven were injured.

"No to America! Yes to martyrdom!" the crowd chanted as the two coffins arrived.

"Let me congratulate the martyrs and pray we are all granted that same fate," al-Daraji said.

Of the growing U.S.-Shiite tensions in Sadr City, Krivo said the Americans are in an "ongoing dialogue with Shiite officials." He didn't elaborate.

The cleric al-Sadr lives in the southern city of Najaf, but Sadr City, home to thousands of young, unemployed Shiites, is his main power base.

"We want peace, but the Americans came last night thinking this is Fallujah," said Mahdi Abdel-Zahra, 32, referring to a city west of Baghdad where frequent clashes between Iraqis and Americans have taken place. "They are wrong. We've never hurt the Americans in Sadr City."

In Fallujah, an unidentified assailant lobbed a grenade on a passing U.S. military convoy Friday, witnesses said. The Americans responded by opening fire. Three pedestrians were hurt, but it wasn't clear if their wounds were caused by the grenade or the gunfire. No U.S. troops were wounded.

Sadr City is a mainly Shiite area that was known as Saddam City until Saddam's ouster, when it was renamed for al-Sadr's father, a Shiite cleric killed in 1999 by suspected security agents.

Trouble in the northeast Baghdad region began Thursday when a bomber crashed a white Oldsmobile loaded with explosives into a police station, killing himself and nine other people. As many as 45 people were wounded.

Across town, gunmen — one dressed as a Muslim cleric — also shot and killed a Spanish military attache about 30 minutes before the car bombing.

Also Friday, L. Paul Bremer (search), the U.S. administrator in Iraq, urged Congress to approve President Bush's request for about $20 billion for reconstruction to "help put Iraq on the road to complete recovery."

"If we can spend it well over the next 12 to 18 months, that will be the lion's share of what we have to do here in Iraq," he told ABC's "Good Morning America."

Vice President Dick Cheney said Friday that the United States still faces enemies who could inflict hundreds of thousands of American deaths in a single day, and he defended the Iraq invasion as a critical strike against such terror.

"We could not accept the grave danger of Saddam Hussein and his allies turning weapons of mass destruction against us or our friends and allies," Cheney told the conservative Heritage Foundation.

So far, the United States has found no such weapons despite extensive searching.