Radical Shiite cleric Muqtada al-Sadr (search) and his militia had mostly vacated and removed weapons from the shrine in Najaf Friday where they had been holed up during a 2-week-long standoff with U.S. and Iraqi troops.

Iraq's top Shiite cleric, Grand Ayatollah Ali al-Sistani (search), agreed to take control of the Imam Ali Shrine (search). One al-Sadr aide said the keys to the mosque could be handed over later Friday, though details were still being worked out.

Fighters from al-Sadr's Mahdi Army were inside the shrine but left their guns outside. Armed militiamen continued to circulate around the walled shrine compound in Najaf's Old City.

But al-Sadr himself wasn't there; it's thought he slipped out of the shrine overnight.

Al-Sadr and al-Sistani aides late Friday night were still trying to agree on how to transfer control. An aide to al-Sistani insisted al-Sadr's followers must completely leave the site before religious authorities would take the keys to the shrine that symbolize control.

"If they want to vacate the holy shrine compound and close the doors, then the office of the religious authority in holy Najaf will take these keys," Sheik Hamed Khafaf said from London, where al-Sistani was undergoing medical treatment. "Until now, this hasn't happened."

Still, with efforts to find a peaceful solution intensifying, Iraqi Prime Minister Ayad Allawi (search) on Friday backed off threats to storm the site, and his national security adviser said the government wants al-Sadr to join the political process.

The Mahdi Army has used the golden-domed shrine, one of the holiest sites in Shia Islam, as a stronghold and refuge in fighting with U.S. forces since Aug. 5. Turning over the site would likely mean an end to al-Sadr's revolt for the time being — though it would not necessarily mean the dismantling of his militia, a demand he has so far rejected.

Confusion was created when an Interior Ministry spokesman, Sabah Kadhim, said Friday evening that police had entered the shrine and arrested 400 armed militants without incident.

However, an Associated Press reporter and other journalists who were in the shrine throughout the day said no police entered and no arrests were made. In the evening, no Iraqi police or security forces were in the shrine.

Sporadic gunfire and occasional explosions were heard in the city Friday evening, but far less than previous nights.

A Quieter Najaf

On Thursday, Allawi threatened to send a large Iraqi force in to take the shrine, a move certain to cause bloodshed and infuriate Shiites across Iraq. On Thursday and overnight, U.S. warplanes bombed militia positions in Najaf in fighting that killed 77 people and wounded 70 others.

But with Najaf on Friday at its quietest in weeks, Allawi said a peaceful resolution was possible.

"We are not going to attack the mosque, we are not going to attack Muqtada al-Sadr and the mosque, evidently we are not going to do this," Allawi told BBC radio Friday. "The olive branch is still extended, he can take advantage of the olive branch."

Allawi's government wants al-Sadr and his followers incorporated into the political process, Iraqi National Security adviser Mouaffaq al-Rubaie said. He said in a television interview that al-Sadr was not a terrorist and did not pose a strategic threat to Iraq like Al Qaeda and other extremists did.

"The political process and democracy in Iraq is so accommodating that it can and will accommodate even the most extremist group, including Muqtada al-Sadr," he said.

Asked about an arrest warrant against al-Sadr issued earlier this year by an Iraqi judge — before Allawi's government came to power — al-Rubaie said he was not aware of any outstanding warrant, though he added, "if he (al-Sadr) has been accused of any criminal act he should stand trial."

U.S. occupation authorities announced in April the warrant against al-Sadr on charges of killing a rival cleric a year earlier — and the announcement helped spark the Mahdi Army's first uprising, which was only quelled two months later with a series of truces.

The sanctity of the shrine had made uprooting al-Sadr's fighters a daunting task since the truces broke down and fighting erupted again Aug. 5. U.S. forces had ruled out an American assault on the site and had faced tough fighting in a vast cemetery nearby from which militiamen fired on American and Iraqi troops.

Handing over the shrine to al-Sistani's religious authorities appeared to be a face-saving way to emerge from the standoff for al-Sadr, who opposes the U.S. presence in Iraq and often sharply criticizes the pro-U.S. interim government.

"We don't want to appease the government. ... We want to appease the Iraqi people," an aide to al-Sadr, Ahmed al-Shaibany, said earlier Friday as he headed to al-Sistani's office in the city to discuss handing over the keys.

In a sermon read on his behalf in the nearby Kufa Mosque, al-Sadr said he wanted the religious authorities to take control of the Old City from his Mahdi Army, though he also called on all Muslims to rise up if the shrine is attacked.

"If you see the dome of the holy Imam Ali Shrine shelled, don't be lax in resisting the occupier in your countries," he said.

In Other Violence

In Baghdad, troops from the U.S. Army's 1st Cavalry Division pulled out of the Sadr City slum, scene of fierce fighting between U.S. forces and supporters of the rebel cleric the day before, when five fighters and five civilians were killed.

In Fallujah, west of the capital, U.S. warplanes launched two airstrikes Friday on the troubled Iraqi city, considered a hotbed of Sunni Muslim insurgents. Two people were killed and six injured in the first attack just after midnight, said Dia'a al-Jumeili, a doctor at Fallujah's main hospital. The other strike, which hit an open field, wounded three people.

Elsewhere in Iraq, militants attacked oil facilities in the north and south and fired mortars at U.S. Embassy offices in the capital, injuring one American.

An aide to al-Sadr said kidnappers have promised to release a U.S. journalist abducted in the southern city of Nasiriyah on Aug. 13.

The kidnappers, calling themselves the Martyrs Brigade, threatened a day earlier to kill New York journalist Micah Garen within 48 hours. But al-Sadr aide Sheik Aws al-Khafaji said he spoke with the militants, who told him they would release Garen later Friday.

Garen appeared in a video aired on Al-Jazeera later Friday, saying that his captors were treating him well.

"I am an American journalist in Iraq and I've been asked to deliver a message," he said. "I am in captivity and being treated well."

Meanwhile, insurgents set off a roadside bomb that killed an American soldier and wounded two others in the city of Samarra, northwest of Baghdad, the military said.

The military also announced that two U.S. Marines were killed in action on Wednesday and Thursday in Iraq's volatile western province of Anbar.

As of Thursday, 947 U.S. service members have died since the beginning of military operations in Iraq in March 2003, according to the U.S. Defense Department.

The Associated Press contributed to this report.