U.S. aircraft and tanks attacked rebel positions as fierce fighting erupted early Wednesday in Baghdad's Sadr City (search) area.
The fighting came as U.S. and Iraqi forces searched for weapons caches in the Shiite stronghold, an east Baghdad (search) slum.
An Associated Press reporter near the scene said a U.S. C-130 gunship raked one area with heavy fire after rebels loyal to radical Shiite cleric Muqtada al-Sadr (search) opened fire with rocket-propelled grenades.
U.S warplanes and Apache helicopter gunships also carried out strikes. One helicopter was hit by groundfire but managed to return to its base, and one tank was disabled by a roadside bomb. There were no immediate reports of any injuries to U.S. forces.
At one point, U.S. troops took to the slum roof tops to chase down five rebels armed with assault rifles, killing two and capturing three.
On Tuesday, U.S. planes also struck in Sadr City in an attempt to destroy roadside bombs and mines strewn across the slum's streets. Al-Sadr officials said the strikes destroyed the homes of civilians.