Iraqi security forces backed by U.S. troops had the town of Madain (search) surrounded Sunday after reports of Sunni militant kidnappings of as many as 100 Shiites residents, but there were growing indications the incident had been grossly exaggerated, perhaps an outgrowth of a tribal dispute or political maneuvering.

The town of about 1,000 families, evenly divided between Shiites and Sunnis, sits about 15 miles south of the capital in what the U.S. military has called the "Triangle of Death" (search) because it has become a roiling stronghold of the militant insurgency.

An AP photographer and television cameraman who were in or near the town Sunday said large numbers of Iraqi forces had sealed it off, supported by U.S. forces farther away on the edge of Madain.

The cameraman said he toured the town Sunday morning. People were going about their business normally, shops were open and tea houses were full, he said. Residents contacted by telephone also said everything was normal in Madain.

And American military officials said they were unaware of any U.S. role in what had been described as a tense sectarian standoff in which the Sunni militants were threatening to kill their Shiite captives if all other Shiites (search) did not leave the town.

The confusion illustrated how quickly rumors spread in a country of deep ethnic and sectarian divides, where the threat of violence is all too real. Poor telephone communications and the difficulty of traveling from one town to the next because of daily attacks on the roads make it difficult even for government officials to establish the facts.

National Security Minister Qassim Dawoud warned Parliament on Sunday of attempts to draw the country into sectarian war and said three battalions of Iraqi soldiers, police and U.S. forces were sent to Madain. He said the Iraqi military was planning a large-scale assault on the region by week's end.

A Defense Ministry official, Haidar Khayon, said early Sunday that Iraqi forces raided the town and freed about 15 Shiite families and captured five hostage takers in a skirmish with light gunfire. He said there were no casualties.

Iraq's most influential Shiite Muslim cleric, Grand Ayatollah Ali al-Sistani, urged government officials to resolve the crisis peacefully, his office said.

By the end of the day, however, Iraqi officials had produced no hostages and Iraqi military officials and police who had given information about the troubles in Madain could not be reached for further details.

Also on Sunday, Sheikh Abdul Salam al-Kubaisi, a spokesman for the Association of Muslim Scholars, an organization of Sunni clerics, denied hostages had been taken in Madain. "This news is completely untrue," he told al-Jazeera television.

The country's most-feared insurgent group, Al Qaeda in Iraq, also denied there had been any hostage-taking in a statement Sunday on an Islamic Web site known for its militant content.

The group, headed by the Jordanian-born terrorist Abu Musab al-Zarqawi, said the incident was a fabrication by the "enemies of God" to justify a military attack on Madain aimed at Sunnis.

Sunnis make up about 20 percent of Iraq's estimated 26 million population, but were dominant under Saddam Hussein. Since U.S.-led forces drove him from power two years ago, the disempowered Sunnis are believed to form the backbone of the ongoing insurgency, angered by their loss of influence to majority Shiites.

Whatever happened in Madain began Thursday when Shiite leaders claimed Sunni militants seriously damaged a town mosque in a bomb attack. The next day, the Shiites said, masked militants drove through town, capturing Shiites residents and threatened to kill them unless all Shiites left.

Shiite leaders and government officials had earlier estimated 35 to 100 people were taken hostage, but residents disputed the claim, with some saying they had seen no evidence any hostages were taken.

Security forces began raiding sites Saturday in search of those abducted, Dawoud said.

Elsewhere in Iraq on Sunday, insurgents killed at least eight Iraqis in attacks across the country aimed at police and other employees of the U.S.-backed interim government.

The U.S. military said three American soldiers had been killed and seven wounded as insurgents fired mortar rounds late Saturday at a U.S. Marine base near Ramadi, 70 miles west of Baghdad. Late Sunday, loud explosions were heard again from the direction of the base, but the U.S. military said it was not aware of any incidents involving its forces in the area.

As of Sunday, at least 1,554 members of the U.S. military have died since the beginning of the Iraq war in March 2003, according to an Associated Press count.

The assault raised to 24 the number of people who died in Iraq Saturday, including an American civilian, an Iraqi and another foreigner who died in a car bombing in the capital.

The U.S. Embassy identified the American civilian victim as Marla Ruzicka, the 28-year-old founder of the Washington-based Campaign for Innocent Victims In Conflict. CIVIC began conducting a door-to-door survey trying to determine the number of civilian casualties in Iraq soon after the war ended.