Led by a former Saddam Hussein (search) general, Iraqi troops replaced U.S. Marines on Friday and raised the Iraqi flag at the entrance to Fallujah under a plan to end the monthlong siege of the city. A homicide car bomb on the outskirts that killed two Americans and wounded six failed to disrupt the pullout of Marines from bitterly contested parts of the city.

The two deaths on the final day of April raised the U.S. death toll to 136, making it the deadliest month for American forces since President Bush launched the war in March 2003. More Iraqis have died — some 1,360 according to count by The Associated Press — than any month since Saddam's fall.

U.S. officials provided no further details on the bombing.

The shift of security responsibilities to Iraqis — with U.S. forces pulling back from most of their positions inside the city — was a move toward ending the intense fighting that had evoked strong international criticism and from America's Iraqi allies.

Negotiations also were taking place in the southern city of Najaf, where tribal leaders and police agreed to a three-day truce as part of a plan to resolve a standoff between soldiers and militiamen loyal to radical Shiite cleric Muqtada al-Sadr (search).

A defiant al-Sadr said: "America is the enemy of Islam."

Elsewhere, Iraqi police Col. Ahmad al-Khazraji (search) was shot to death Thursday night in Baghdad, the U.S. command said. The body of a Baghdad local official also was found hung with a sign on his chest that said "al-Mahdi Army business," a reference to al-Sadr's militia.

Convoys of U.S. troops and equipment could be seen heading out of parts of Fallujah, replaced by red-bereted Iraqi troopers from the new force due to control the city.

Residents said that by Friday evening, U.S. troops had left several neighborhoods that had been the scene of heavy fighting, including Nazzal, Shuhada, Nueimiyah and the industrial area. As U.S. Marines withdrew, Iraqi police and civil defense units moved in.

At the checkpoint at main eastern entrance to the city, the commander of the Iraqi force, Maj. Gen. Jassim Mohammed Saleh, shook hands with Col. John Tullin, commander of the 1st Marine Regiment, as Iraqi forces raised their own flag over the checkpoint.

"You are our dear friends," Saleh told Tullin.

Saleh — a burly ex-member of Saddam's Republican Guard with a Saddam-style mustache — arrived in the city to the cheers of some residents.

"Initially it appears that the transition to the Fallujah Protective Army is working," said Marine. Lt. Col. Brennan Byrne. "It's a delicate situation. The Fallujah Protective Army is the Iraqi solution we've all been looking for in this area."

Brig. Gen. Mark Kimmitt (search), coalition deputy operations chief, insisted the Marines were not "withdrawing" from Fallujah, one of the most hostile cities in the tense Sunni Triangle (search), but were simply "repositioning."

Asked if the Marines were leaving, Kimmitt replied: "Nothing could be further from the truth." He said the Marines would maintain a strong presence "in and around Fallujah."

"The coalition objectives remain unchanged — to eliminate armed groups, collect and positively control all heavy weapons, and turn over foreign fighters and disarm anti-Iraqi insurgents in Fallujah," Kimmitt said.

Nevertheless, the move appeared aimed at reducing the American profile at a time of growing opposition among Iraqis to the U.S.-led occupation.

The security plan also marked a shift in U.S. strategy, which had marginalized former members of Saddam's Baath Party and abolished the Iraqi army last year.

The commander of the new Fallujah brigade, Maj. Gen. Jassim Mohammed Saleh, once served in Saddam's Republican Guard. He arrived in the city Friday wearing his old uniform to the cheers of bystanders.

Under the plan, a force of 600 to 1,100 Iraqis, many of them former soldiers from the Fallujah area, would initially man checkpoints. Marines will remain on or near the city's perimeter and at a later stage conduct their own patrols inside the city, a Pentagon official said, speaking on condition of anonymity.

Gen. John Abizaid, chief of U.S. military operations in the Middle East, said the United States was sticking by most of the objectives it outlined when the Marines stormed Fallujah on April 5 — mainly to seize men who killed and mutilated four American contractors.

However, Abizaid conceded the killers probably had fled the city. And he also seemed to considerably soften previous demands that the guerrillas hand over foreign fighters and heavy weapons to U.S. forces.

"Clearly, we will not tolerate the presence of foreign fighters," Abizaid said. "We will insist on the heavy weapons coming off the streets. We want the Marines to have freedom of maneuver along with the Iraqi security forces."

Foreign fighters, too, may have fled the city, a top U.S. military official in Baghdad said Thursday. Others question whether foreign fighters ever joined the battle in Fallujah, characterizing it instead as a homegrown uprising. And weapons coming "off the streets" appears to be a backing off previous demands to "turn over" arms to the Marines.

Abizaid said he does not need more American troops in Iraq, but he pointedly urged Muslim nations to send forces. He said about a dozen Iraqi security battalions that failed to perform in central and south-central Iraq are being retrained and thus unavailable for "any major challenges" until at least November.

Saleh, the Iraqi general running the new force, was checked out by the Marines and they had full confidence in his background, Kimmitt said.

A former general in the Iraqi army, Mohammed al-Askari, said Saleh served in the Republican Guards in the 1980s. He later commanded an Iraqi army division and headed the army's infantry forces.

Sheikh Dhafir al-Obeidi, delivering a Friday sermon at Fallujah mosque, didn't directly mention the peace deal, but called on Fallujah residents to "leave behind all differences and join hands."

In an apparent move to speed the Fallujah agreement, U.S. authorities Thursday released the imam of the city's main mosque, Sheik Jamal Shaker Nazzal, an outspoken opponent of the U.S. occupation who was arrested in October.

The chief of Fallujah's hospital, Rafie al-Issawi, said at least 731 Iraqis, many of them civilians, were killed since the siege began on April 5. Earlier figures were disputed by Iraq's health ministry and an exact toll was not known. At least 10 Marines died in the siege.

At least 738 U.S. troops have died in Iraq since the war began in March 2003. Up to 1,200 Iraqis also have been killed this month.

In Najaf, negotiations continued to end the standoff with militiamen loyal to al-Sadr.

Ahmed Shaybani, a spokesman for al-Sadr, told The Associated Press that talks were under way between Najaf police and tribal leaders. He said a proposal emerged for al-Sadr followers to hand security to Najaf police and al-Sadr's Mahdi army to leave the city.

Shaybani said the proposal would be accepted if Americans agreed not to enter Najaf and did not act in a hostile way toward its holy sites. Al-Sadr would remain in the city.

Despite U.S. troops on the edge of Najaf with orders to kill or capture him, al-Sadr has gone freely back and forth to nearby Kufa every Friday for the noon prayers for the past three weeks.

Preaching at a mosque in nearby Kufa, al-Sadr did not soften his stance.

"Some people have asked me to tone down my words and to avoid escalation with the Americans," al-Sadr said. "My response is that I reject any appeasement with the occupation and I will not give up defending the rights of the believers. America is the enemy of Islam and Muslims and jihad is the path of my ancestors."