Attackers wounded two U.S. soldiers Friday and mortar shells rained down on the main American base in Najaf (search) — separate incidents that threatened the deal aimed at ending the bloody, seven-week standoff around this Shiite holy city.

Masked gunmen of radical cleric Muqtada al-Sadr's (search) militia — some with knives and hand grenades strapped around their waists — roamed the streets of Najaf's twin city, Kufa, accusing the U.S.-led coalition of failing to honor the agreement to halt the fighting.

The fighters accused the Americans of a provocation by sending tanks and armored vehicles into Kufa (search) from three directions, prompting the militia to open fire "to protect ourselves." Three Iraqis were killed and eight injured in armed clashes, hospital workers said.

In a sign of the tension, al-Sadr failed to appear at a Kufa mosque where he has preached every Friday — the main Muslim day of worship — since the rebellion began in early April. Aides said his absence was due to security concerns.

Brig. Gen. Mark Kimmitt (search), coalition deputy chief of operations, reported five attacks against coalition forces in Kufa and said they "would appear to be violations" of a deal announced by Shiite leaders Thursday to end fighting in the Najaf and Kufa areas.

Coalition spokesman Dan Senor said in Baghdad that occupation authorities still hoped the cease-fire agreement would hold.

Also in Baghdad, the Iraqi Governing Council on Friday chose one of its members, Iyad Allawi, to become prime minister in the new government taking power June 30.

The announcement came as a surprise to the United Nations, which has been leading the process of choosing the government — hopefully by the end of the month. U.N. envoy Lakhdar Brahimi has been in Baghdad for weeks consulting with Iraqis about the makeup of the government.

Brahimi "respects" the decision and is willing to work with Allawi to pick the rest of the government, U.N. spokesman Fred Eckhard said in New York.

Eckhard said Brahimi would consult with Allawi to consider others for government posts to gather "the widest possible support of the Iraqi people."

"But in the end, it's the Governing Council and the (U.S.-led coalition) that will make the decision," Eckhard.

The coalition said it was not a party to the agreement Thursday to end the fighting in Najaf but would suspend offensive operations. However, U.S. officials said they would continue "security patrols," some of which the militias consider provocative.

Despite the agreement, nine mortar shells exploded early Friday on the main U.S. camp in the Najaf area. U.S. soldiers reportedly arrested four suspected militiamen, who claimed they were unaware of the order to stop attacks.

In Najaf, sporadic gunfire could be heard during the night. Al-Sadr militiamen, with bandoliers of ammunition around their necks and extra magazines of ammunition strapped to their belts, roamed the streets looking for what they said were snipers.

The U.S. command in Baghdad confirmed two soldiers were wounded when Shiite gunmen fired on their Humvee on a Najaf street, but provided no further details.

American forces could be seen near the entrances of the city. Gunmen from al-Sadr's militia took positions on the streets of Kufa, squatting beside walls and waiting.

Worshippers, meanwhile, converged on the city's gold-domed mosque, hoping to hear al-Sadr speak. Thousands of worshippers — many of whom had traveled from Baghdad, 90 miles to the north — praised him anyway, packing the mosque and its courtyard while chanting "Muqtada is a bridge to heaven!"

Khawla Hassan, 30, sat in the courtyard, waiting in a flowing black robe. She praised the radical cleric for the deal, describing it as a "victory for the master."

"This was a peace agreement," she said. "We all love peace."

The truce deal announced Thursday provides the Americans a way out of a standoff that threatened to alienate Iraq's Shiites — the largest religious community. But U.S. demands for al-Sadr's arrest and disbanding his militia were unmet — and the deal opens the door for a political role for a figure President Bush had branded a "thug."

The deal also allows for discussions of al-Sadr's future, talks that will certainly stretch past the June 30 handover. The arrest warrant for al-Sadr, however, has not officially been suspended.

Also Friday, U.S. authorities released 617 prisoners from the notorious Abu Ghraib (search) prison, site of sexual humiliation and abuse of Iraqi inmates by American guards. It was the third and largest mass-release of prisoners since the scandal broke in April.

Shots rang out shortly after buses carrying the free prisoners pulled out of the prison complex on the western edge of Baghdad. Jittery U.S. soldiers opened fire toward apartment buildings along a freeway — but Kimmitt said the first volleys were simply Iraqis celebrating the release.

There were no reports of injuries.