This is part of the America's Future series airing on FOX News Channel, looking at the challenges facing the country in the 21st century.

BAGHDAD, Iraq — A blast that tore through a government office in Sadr City Tuesday is believed to be the work of Jaish al-Mahdi (JAM), the Shia militia run by cleric Muqtada al-Sadr.

Sadr City’s District Advisory Council met Tuesday to elect a new chairman after its previous head, Abdul Hassan — a known JAM member — was asked to resign because his election had been achieved through intimidation.

U.S. State Department representatives have been working with council members for more than a year, helping them grow a new local democracy in an area of Baghdad famously under the sway of the radical cleric. Steven Farley, a member of the State Department's reconstruction team in Sadr City, was among the 10 people killed in Tuesday’s blast.

• Click here to see photos from inside Sadr City.

The bomb, which was planted in the office of the deputy chairman, Hassan Shama, was designed to detonate as the council members met to vote on their new chairman. Shama, who was considered the likely pick, now lies critically injured in a hospital.

Even before Tuesday, Shama was no stranger to Sadrist attacks. “I try to assist the U.S. and I have survived more than one assassination attempt,” he told FOX News just two weeks ago.

“Two days ago they burned my car ... because I’m working with the U.S. ... not because they think I’m a spy, but because I’m serving my people and my city.”

Until Tuesday morning, a fragile truce nearly 2 months old between JAM and Iraqi forces still held in Sadr City — but the threat of Sadr’s militia had not abated.

“Do they want to stage a comeback? I’m sure they do,” said Maj. Travis Thompson, deputy commander of the Joint Security Station in the bottom quarter of Sadr City. “The question is: Can they?”

• Click here for more from Anita McNaught on the future of the al-Sadr's militia.

Now JAM has demonstrated very clearly that it can. Loyal to al-Sadr and funded in part by Iran, the group has an estimated 40,000 fighters, many of them disaffected, uneducated Shiite men.

From the end of March through the beginning of May, the Sadr City district in northeast Baghdad saw some of the fiercest urban combat of the 5-year war.

But since signing an Iranian-brokered truce at the beginning of May, JAM had largely honored its pledge to allow the Iraqi government’s security forces to “impose law and order ... and end all illegal militia presence.”

Local residents have had no doubt that JAM was still around, although most were too intimidated by the remaining militia presence to discuss its role in Sadr City.

“Please don’t ask me this,” begged one trader in the Jamila Market. “Ask me anything else.”

But Ferat Attiyeh, an Iraqi Police liaison officer, did speak to FOX News, in part because he moved his family to safety a day or so before — after JAM fired shots through his front door.

“What the government did was only a little bit to repel them,” said Attiyeh, who works with U.S. forces in the bottom corner of the district — the only part jointly patrolled by the U.S. and Iraqi Army.

“They are still working inside the city. There are killings, lootings, they come and go in unmarked cars. They threaten anyone who works with U.S. forces. Outside the wall, they are still in control,” he said.

That wall is a concrete barrier U.S. forces erected around Sadr City’s bottom quarter in April and May. Officials said the wall will stay until they are satisfied that the area is stable. They have given no timeframe for its removal.

American troops believe they are being watched by JAM militia. “Absolutely. I think so, absolutely,” said Lt. Col. Brian Eifler, commander of Taskforce 1-6, which is charged with keeping the area secure.

“I think some of them are not sure what they can and what they are willing to do in the future,” he said, noting the militia's lack of clear leadership.

The U.S. military says that the senior leadership of JAM left the area long ago, when they realized their fight against U.S. and Iraqi forces could not be won head-on. Some of them are now hiding in other parts of Iraq, some went across the border into Iran and some have remained in Baghdad, where they have fought sporadically with U.S. forces.

Both the U.S. and Iraqi militaries are putting money into reconstruction, compensation and restoration of essential services, though the Iraqi government has yet to provide the $100 million it pledged to the effort.

Hope for a lasting peace lies ultimately with the local population, and U.S. and Iraqi security services are reliant on what locals tell them about the militia cells hiding in their midst.

“There’s a lot of information [coming to us],” said Lt. Col. Eifler, “and quite honestly we could not map out where these cells are and some of these remaining elements without the tips that we’re getting from the people of the area.”

But there were no tip-offs Tuesday about the bomb planted in the district council office, waiting for its political targets to come to work.

Click here to see more on America's Future.