Iraq's most influential Shiite cleric on Tuesday demanded that all armed groups — including U.S. troops — withdraw from the embattled holy cities of Najaf (search) and Karbala (search), where nine militiamen loyal to a rebel cleric were killed in heavy fighting with U.S. forces.

The statement by Grand Ayatollah Ali al-Husseini al-Sistani (search) came after the U.S. administrator in Iraq vowed to continue the transfer of sovereignty to Iraqis as scheduled despite Monday's killing of the head of the U.S.-appointed Iraqi Governing Council (search).

"Terrorists are trying to stop Iraq's march to sovereignty and peace," U.S. administrator L. Paul Bremer (search) said at a memorial service in Baghdad for Izzadine Saleem, who was killed by a homicide bomber Monday at a checkpoint near coalition headquarters. "They will not succeed."

"We must continue the political process leading to an interim government next month and to elections next year," he added.

The killing was a major setback to American efforts to stabilize Iraq just six weeks before the June 30 handover of sovereignty.

The U.S.-led coalition is struggling to contain an insurgency in Sunni areas north and west of Baghdad, as well as an uprising in the Shiite heartland to the south led by radical cleric Muqtada al-Sadr.

Al-Sistani distributed a statement to reporters in Najaf making a balanced appeal to both sides to withdraw fighters from the holy cities. The call could complicate the Americans effort to drive the militia out of key cities in southern Iraq.

Al-Sistani's appeal was not put in the form of a religious edict, or fatwa, apparently to avoid the appearance of being an ultimatum.

Al-Sadr had called for peaceful demonstrations against incursions and damage to mosques and shrines in recent fighting, allegedly by American troops. The U.S. military says militiamen have used some Muslim holy places as firing positions and weapons storage sites.

"The office of Seyed al-Sistani directs all citizens not to go to the holy city of Najaf at the moment," the statement said, using the title for a descendant of the Prophet Muhammad.

It said peaceful demonstrations could be held at mosques in city centers to "protest the violation over these holy cities and the houses of the grand ayatollahs. Participants could demand the removal of all armed groups from these two cities and let the police and tribesmen play role in maintaining peace and order."

Moderate clerics, including al-Sistani, are believed to have tense relations with al-Sadr.

Early Tuesday, U.S. troops killed nine fighters loyal to al-Sadr in Karbala, said Mutaz al-Hasani, a witness who saw their bodies. Ten Iraqi fighters were wounded in the clashes, which lasted more than an hour on streets near the city's Imam Hussein and Imam Abbas shrines.

U.S. troops and militiamen also fought in the Mukhaber district of Najaf, 45 miles southeast of Karbala. Explosions and heavy firing were heard overnight.

A Najaf hotel housing correspondents of the Arab news network Al-Jazeera and a Kuwaiti TV crew was damaged in the fighting, but no injuries were reported.

Gunmen also opened fire Tuesday on a convoy of civilian cars in the northern city of Mosul, killing one foreign security guard, the U.S. military said, although it did not give a nationality.

American troops sealed off the area after the attack, witnesses said. Witnesses earlier said two foreigners were killed and another was injured.

Al-Sadr's militia, al-Mahdi Army, launched an uprising against the coalition in early April. Al-Sadr, a fierce opponent of the occupation who is based in Najaf, is wanted on charges of killing a rival moderate cleric last year.

In Baghdad, Interior Minister Samir Shaker Mahmoud al-Sumeidi said an Iraqi team had been set up to investigate the killing of Saleem and would receive help from the FBI. He said he was asking U.S. authorities whether Saleem may have been delayed or turned away at the checkpoint where he died because he lacked the authorized pass to get in, and that this may have contributed to his death.

"The Interior Ministry will rethink the security needs of high-profile personalities and will consult with the coalition forces about bridging the gaps that we know exist," al-Semeidi said.

At Saleem's memorial, his family and members of the Governing Council gathered inside the so-called Green Zone, which houses the coalition headquarters. Iraqi security forces in desert camouflage carried Saleem's coffin, which was draped with the Iraqi flag, from the hall after the service. Bremer and other dignitaries, including new Governing Council chief Ghazi Mashal Ajil al-Yawer, a Sunni Muslim civil engineer from Mosul, kissed and shook hands with Saleem's grieving relatives.

U.N. envoy Lakhdar Brahimi, who is consulting Iraqis about the makeup of the interim government that will take office after June 30, also attended the ceremony.

"We're all working together in order to rebuild Iraq, which he sacrificed his life for," Brahimi said. "We express our cordial sorrow to his relatives and to the Iraqi people."

Saleem's body was later flown in a military plane to his southern hometown of Basra, where British troops delivered the coffin to Iraqi police ahead of a ceremony at a mosque.

In London, British Foreign Secretary Jack Straw said Tuesday that the situation in Iraq is tougher than Britain anticipated last year.

"It's palpable that the difficulties which we have faced have been more extensive than it was reasonable to assume nine months ago," Straw told British Broadcasting Corp. radio.

Saleem, also known as Abdel-Zahraa Othman, was waiting in a Governing Council convoy at a U.S. checkpoint along a tree-lined street preparing to enter the Green Zone when the bomb was detonated. It apparently had been rigged with artillery shells and hidden inside a red Volkswagen. At least six other people were killed and 16 were wounded, including two U.S. soldiers.

Saleem, a Shiite Muslim in his 60s, held the rotating presidency of the 25-member Governing Council for May. He was the second council member slain since their appointment last July; Aquila al-Hashimi was mortally wounded by gunmen in September.

It was unclear whether the Governing Council planned to appoint another delegate to the council following Saleem's death. Two council members took Cabinet positions in April, and were not replaced. So there are currently 22 members, down from the original 25.

Kimmit said Monday the bombing had the "classic hallmarks" of Abu Musab al-Zarqawi, a Jordanian-born militant with links to al-Qaida. But on Tuesday, he said another group may be to blame "because of methodology in some of the techniques that were used." He did not elaborate.

A previously unknown group, the Arab Resistance Movement, claimed responsibility, saying in a Web site posting that two of its fighters carried out the attack on "the traitor and mercenary" Saleem.

Al-Zarqawi is believed responsible for many of the vehicle bombs in Iraq in recent months and for the beheading last week of U.S. civilian Nicholas Berg.

At a briefing in Baghdad, Kimmitt denied rumors that suspects had been arrested Tuesday in Berg's death.

"We have no information from the coalition that any arrests were made today," he said.

Kimmitt also said the military will release 472 prisoners Friday from the Abu Ghraib jail, center of a scandal involving abuse of detainees by American soldiers.

Also Tuesday, Iraq's deputy foreign minister Hamid al-Bayati said he will ask the United Nations in talks later this week to give the country's coming government full control of oil revenues and to scrap or reduce Iraq's debts and war reparations.