The U.S. Embassy resumed convoys Friday under Blackwater USA protection as Iraqi officials signaled they were prepared to compromise in the fatal shooting case involving the security contractor.

The move came as Secretary of State Condoleezza Rice said Friday she had ordered a "full and complete review" of security practices for U.S. diplomats worldwide.

Speaking at a press conference in Washington, Rice said she had directed the State Department to examine "how we are providing security to our diplomats."

An aide to Prime Minister Nouri al-Maliki told The Associated Press on Friday that the Iraqis were considering allowing Blackwater and other Western security companies to continue operating here but under strict new rules that would bring them under tighter control.

U.S. Embassy spokeswoman Mirembe Nantongo said the decision to resume land travel outside the heavily fortified Green Zone was made after consultations with the Iraqi government, which ordered Blackwater to cease operations following the Sunday shooting that claimed 11 lives.

Nantongo said the convoys will be limited to essential missions. But she declined to comment on the various versions of the incident, pending completion of a joint U.S.-Iraqi investigation. She also would not say how many convoys operated Friday, citing security.

But Interior Ministry spokesman Maj. Gen. Abdul-Karim Khalaf said a preliminary Iraqi report found that incident unfolded when Blackwater guards in Nisoor Square began firing without provocation, first killing a driver who had failed to heed a traffic policeman's call to stop.

Witnesses said other victims were fatally shot when they abandoned their vehicles in panic and tried to run or crawl to safety. Blackwater says its guards were returning fire from armed insurgents.

But Khalaf, who announced the ban on Blackwater last Monday, insisted that "right from the beginning" the Interior Ministry believed that "only the people behind the incident should be punished and stand trial, not the whole company."

The killing outraged many Iraqis, who have long resented the presence of armed Western security contractors, considering them an arrogant mercenary force that abuses Iraqis in their own country.

But the United States relies heavily on Blackwater and other security companies to protect American diplomats and civilian officials since the 160,000-strong American military force is already stretched trying to subdue Sunni and Shiite extremists.

A senior official on al-Maliki's staff said the Iraqi government realizes that it may not be able to push through a ban on Blackwater USA because the Americans rely so heavily on security firms. The official spoke on condition of anonymity because the issue is politically charged.

The official said several options were under study, including a new set of regulations and rules of engagement for security convoys. He gave no details but said security companies would have to "accept Iraqi law," and Blackwater would likely have to pay compensation to the victims or their survivors.

The U.S. must also accept amendments to a 2004 directive, issued in the final weeks of the American occupation, which granted contractors, U.S. troops and many other foreign officials immunity from prosecution under Iraqi law, he said.

Security contractors are also not subject to U.S. military law under which U.S. troopers face prosecution for killing or abusing Iraqis.

The al-Maliki aide said some of the Blackwater guards believed to have been involved in the shooting were Iraqis and could face prosecution in Iraqi courts.

In another sign that a deal may be in the works, Hadi al-Amri, a prominent Shiite lawmaker and chairman of the parliamentary security committee, said one way out of the stalemate would be for the company to admit wrongdoing, apologize and pay compensation.

"They are always frightened and that's why they shoot at civilians," al-Amri said. "If Blackwater gets to stay in Iraq, it will have to give guarantees about its conduct."

Iraqi officials began rolling back on the ban after Secretary of State Condoleezza Rice telephoned al-Maliki late Monday and assured him the incident would be thoroughly investigated.

Still, there were still no guarantees that the issue would be resolved quickly, given Iraq's chaotic government, where numerous factions wield power.

Some of them may demand punishment for non-Iraqi guards involved in the shooting -- a request that the Americans may well resist.

Al-Maliki is expected to discuss the issue when he meets President George W. Bush next week. The Iraqi prime minister left Friday for New York to attend the U.N. General Assembly session.

Several versions of the shooting have circulated in Baghdad and the facts of the incident remain unclear.

According to Khalaf, a car bomb detonated around noon Sunday near al-Rahman mosque in Mansour, about 1.5 kilometers (a mile) north of Nisoor Square. "Minutes later, two mortar rounds landed nearby Nisoor Square and they thought that they were under attack," Khalaf said.

"They started shooting randomly from four positions in the square, killing 11 civilians and injuring 12 others. The first one who was killed was a driver who failed to stop and then his wife," Khalaf said.

Some witnesses have said they heard no bomb and insist that the guards fired without provocation. Many witnesses appear to have been stuck in a traffic jam and may not have had a clear view of the area.

A U.S. official in Washington who is familiar with information collected by investigators said most witnesses agree that Blackwater guards fired on a car that was acting suspiciously. The car then burst into flames and exploded, the official said, citing Iraqi witness accounts.

Americans who were at the scene maintain they were taking fire before the car approached and fired back. Some insist the car exploded without being hit, the official said, declining to be identified before the investigation is final.