The U.S.-picked Iraqi Governing Council (search) is rethinking an agreement with Americans for a power handover by July, with officials saying Sunday the council has set up a committee to assess the best way to choose a provisional legislature.

A delay or unraveling of the agreement would be a major setback for Iraq's U.S.-led administration, which is facing daily attacks on coalition forces by insurgents. On Sunday, U.S. soldiers fought back coordinated attacks in the northern city of Samarra (search), killing 46 fighters, the U.S. military said.

On Nov. 15, the council signed an agreement with officials of the U.S.-led occupation that laid out a plan to elect the legislature from regional caucuses. The assembly would in turn elect a provisional government to take power by July 1.

But the council appeared to backtrack after Iraq's powerful Shiite Muslim leadership objected to the plan for Iraqi sovereignty. Grand Ayatollah Ali al-Husseini al-Sistani (search), Iraq's most influential Shiite leader, demanded that the legislature be elected directly.

At a council gathering Sunday, members agreed to set up a committee to "discover the best ways to include the Iraqi people in the process of choosing the members of a provisional assembly," said Jalal Eddin al-Sagheer, an official who attended the meeting.

Council members agree that "elections are the best way to precisely know the opinion of the Iraqi people, but there are several difficulties," said al-Sagheer, an aide to Shiite Governing Council member Abdel-Aziz al-Hakim.

One of the problems in setting up elections is the absence of an accurate census and of voting rolls, he said.

Entifadh Qanbar, a spokesman for influential council member Ahmed Chalabi, confirmed the council agreed to assess how to transfer power from the occupation authorities to Iraqis. But he said no decision had been made on whether to push for elections.

"The members of the Governing Council think that the mechanism proposed by the American administration ... will not work as the way to elect the provisional assembly," al-Sagheer said. "An election process would be a much better way than what's on the table."

An occupation official said the agreement would stand.

"We intend to honor the agreement we signed," said Dan Senor, a spokesman for the Coalition Provisional Authority that oversees Iraq. "We are now working on issues related to the implementation of that process."

The current plan, approved by the council and U.S. administrator L. Paul Bremer on Nov. 15, calls for general elections to be held by March 15, 2005. Prior to that, an interim constitution, a national assembly and a provisional government will all be installed without any direct balloting by the Iraqi people.