Iraq's interim government said radical Shia cleric Moqtada al-Sadr was negotiating to leave a shrine in the holy city of Najaf.
Iraqi Interior Minister Falah al-Naqib
Spokesmen for the leader of the radical Shia Muslim uprising in central and southern Iraq said he had been wounded in a bombing raid, though his injuries were not life-threatening.
Iraqi Interior Minister Falah al-Naqib said Sadr was unhurt and that a truce took effect in Najaf last night.
The nine-day rebellion in Najaf has killed hundreds and threatened to undermine the rule of Prime Minister Iyad Allawi, who is trying to crush a radical Shia rebellion across seven cities that has hit vital oil exports.
Speaking yesterday after US marines backed by aircraft and tanks launched a major assault on Sadr's Mehdi fighters around the Imam Ali Mosque and an ancient cemetery - both militia strongholds - Allawi urged the fighters to surrender.
Supporters of radical Iraqi Shi'ite cleric Moqtada al Sadr protest in Mosul today
Sadr spokesman Ahmad al-Shinabi said the cleric was wounded in the cemetery.
Mr Naqib denied the claims and said a truce had been in force since last night, although residents said there were sporadic clashes overnight from the city centre. Witnesses said US forces had allowed several ambulances to enter the area and take out at least eight wounded Mehdi fighters.
"Sayyed Moqtada will not be touched if he leaves the shrine peacefully," Mr Naqib said.
Brigadier General Erv Lessel, the top US military spokesman in Iraq, said "clearing" operations to isolate the militia were under way in Najaf, throwing doubt on the truce. Brig Gen Lessel added US forces were under instructions not to pursue him.
Thousands of Sadr supporters protested in front of the Green Zone compound housing the Iraqi government and the US embassy in Baghdad. Several Iraqi police took part, holding up posters of the cleric and putting them on their vehicle windows.
US marines captured Najaf's city centre yesterday. They also stormed Sadr's home, only to find it empty.
They blocked off entry to the Imam Ali Mosque - from where Mehdi fighters have launched attacks during the rebellion - but have kept out of the sacred Shia Muslim shrine.