Radical Shiite cleric Muqtada al-Sadr (search) agreed to withdraw fighters from the Imam Ali shrine (search) in Najaf Wednesday shortly after Iraqi officials gave him and his militia an ultimatum to lay down their arms or else Iraqi forces would storm the mosque where about 3,000 fighters are holed up.

Sheik Hassan al-Athari, an official at al-Sadr's office in Baghdad, said the cleric had agreed to the plan but wanted the Iraqi delegation who traveled to Najaf Tuesday to return to negotiate how it would be implemented and to ensure his militants would not be arrested. He said al-Sadr had other, more minor conditions.

On Wednesday evening, Safiya al-Suhail, an independent Shiite delegate at the conference, said she had received a letter from al-Sadr's Baghdad office saying he accepted the proposal.

"Muqtada al-Sadr has agreed on the conditions set by the National Conference," she said, reading the letter to the conference.

"We call on the Iraqi government and the National Conference to participate in implementing what is proposed by Muqtada al-Sadr, otherwise everybody will bear the responsibility," the letter said.

Meanwhile, in Baghdad, the Iraqi National Conference picked 81 members of a National Council that will act as a watchdog on the interim Iraqi government until January elections. Instead of voting on the 81 as planned, conference delegates approved a candidate list after a competing list was withdrawn.

Earlier, officials refused to send a second delegation to Najaf Wednesday to try to end the clashes between al-Sadr loyalists and U.S. troops after al-Sadr rebuffed the group on Tuesday when they presented the peace deal.

The proposal demanded the cleric's militia drop its arms, withdraw from the shrine and transform itself into a political party in exchange for amnesty.

Conference delegates suggested they were fed up with the anti-American al-Sadr after their eight-man delegation met with his aides Tuesday but never saw the cleric himself.

"If there were anyone sympathizing with him in the past, there will be none from now on because of this stand," delegate Abdul-Halim al-Ruhaimi said Wednesday.

"These delegates will not go again, they presented their proposal, the ball is now in his [al-Sadr's] court," added another official.

A previous cease-fire with his Mahdi Army militia that ended a spring uprising two months ago collapsed two weeks ago into street battles throughout the city.

Iraqi Defense Minister Hazem Shaalan said Wednesday that Iraqi forces were fully trained for a potential mission to oust the militants.

"Today is a day to set this compound free from its imprisonment and its vile occupation," Shaalan told the Arab-language television station Al-Arabiya.

Since peace talks have failed, "we have to turn to what's stronger and greater in order to teach them a lesson that they won't forget, and to teach others a lesson as well," Shaalan said. "In the next few hours, they have to surrender themselves and their weapons."

But Shaalan stressed that U.S. forces would not enter the Imam Ali shrine if an operation was carried out.

"There will be no American intervention in this regard. The only American intervention would be aerial protection and also securing some of the roads that lead to the compound. As for entering the compound, it will be 100 percent Iraqis," Shaalan said.

"Our sons in the national guard have been trained on the breaking-in operation, which was easy for them," he said.

After Shaalan's threat, renewed bombing and gunfire were heard near Najaf's Old City.

While never referring to al-Sadr's Mahdi Army (search) militia by name, Shaalan referred to those who occupied the shrine as a "gang dressed in the clothes of religion."

State Minister Qassim Dawoud said the planned raid would send a message to insurgents throughout Iraq.

"This will be a civilized lesson for those in Fallujah, Samarra, Mosul, Yusufiyah or Basra. There is no lenience ... with those people," he said.

In a statement released Wednesday, Iraqi Prime Minister Ayad Allawi (search) also accused al-Sadr's militia of planting bombs around the mosque.

Fighting Continues

Sporadic gunfire and explosions were heard in Najaf (search) again Wednesday as clashes continued. Fighting in the troubled city has killed six people and wounded 23 others since Tuesday morning, Hussein Hadi of Najaf General Hospital said Wednesday.

Also, a rocket slammed into a busy market in the northern city of Mosul (search) on Wednesday, killing five civilians and wounding seven, the U.S. military said.

In Baghdad (search), delegates prepared to vote for members of a new National Council. As they did, a mortar round hit the roof of Iraq's Foreign Ministry building, causing no damage or injuries.

The blast shook the convention center where the National Conference was being held inside the heavily fortified Green Zone enclave, which is home to Iraqi government offices and the U.S. Embassy.

The U.S. military said it did not conduct offensive operations during the meeting between the delegation and al-Sadr's aides at the shrine on Tuesday.

"We sat still during the entire time on purpose," said Maj. David Holahan, executive officer of the 1st Battalion, 4th Marine Regiment (search).

Elsewhere, in volatile Anbar Province, a Marine with the 1st Marine Expeditionary Force was killed in action Tuesday during "security and stability operations," the military reported. Al-Sadr militiamen also fought a series of gun battles with British troops in the southern city of Basra, with one British soldier and one militant reported killed.

In Fallujah (search), a U.S. warplane fired a missile at a house, killing two people and injuring one, said Dr. Adel Mohammed Moustafa of Fallujah General Hospital.

The U.S. military says the fighting in Najaf has killed hundreds of militants since Aug. 5 though the militants deny that. Eight U.S. soldiers and at least 40 Iraqi police have been killed as well.

The Associated Press contributed to this report.