Najaf, Iraq ? Several thousand U.S. and Iraqi troops launched an assault Thursday on forces loyal to radical Shiite Muslim cleric Muqtada al-Sadr, encircling Najaf’s Old City and Imam Ali Mosque compound, and later raiding al-Sadr’s empty house a few miles to the east.

Firefights erupted in the holy city’s massive cemetery and in several neighborhoods outside the Old City as the military forces moved forward in a risky operation designed to surround and isolate al-Sadr and his Al Mahdi militia. Iraqi officials in Baghdad said about 25 people were killed in the fighting, including at least one U.S. soldier.

U.S. military leaders have expressed concern about the possible repercussions if the shrine is damaged. Al-Sadr and about 1,000 fighters loyal to him are believed to be holed up in the compound, but the fighting Thursday remained relatively clear of the mosque.

In one battle, however, U.S. helicopters fired rockets and machine guns at a truck about 500 yards from the mosque, killing four Al Mahdi militia in it. The attack sparked a large blaze that burned for nearly an hour, sending a plume of black smoke billowing over the mosque’s gold dome.

In Baghdad, top officers of the Iraqi interim government harshly criticized al-Sadr for using the shrine as a refuge and presented video footage of the cleric’s supporters firing mortar rounds from the compound

“They are violating the sanctity of the holy shrine,” Defense Minister Hazem Shaalan said at a news conference. “We are going to get them out of this holy shrine in the manner they deserve. They were firing mortars from inside the holy shrine.”

But Iraqi officials also indicated that foreign troops would not be allowed to fight in the shrine. “It is the Iraqi police and the Iraqi army who are going to liberate these places,” said Interior Minister Falah Naqib.

Marine Maj. David Holohan, a battalion commander in Najaf said that any decision to enter the mosque compound would be made by interim Prime Minister Iyad Allawi.

‘City of the dead’

The U.S.-led offensive began early Thursday morning when Army units positioned themselves along the north and, for the first time, the south of the Old City and the mosque.

Tanks and Humvees rumbled through the cemetery north of the old city and took up positions at night among the tombs and mausoleums. Soldiers call the graveyard the “city of the dead” because it resembles a densely packed village, with alleys and mazelike corridors.

U.S. soldiers aim their guns as Iraqi civilians flee their homes during a day of heavy gun battles in the holy city of Najaf in southern Iraq. U.S. forces have launched a major offensive to crush a militia loyal to radical Shiite cleric Muqtada al-Sadr.

By 8 a.m., Al Mahdi militia began firing at the forward U.S. positions with mortars and rocket-propelled grenades. Soldiers dismounted to search for the source of the attacks, climbing over crypts and silently motioning to one another.

Shortly after the U.S. troops returned to their vehicles, the insurgents again attacked, and two soldiers were sprayed with shrapnel from mortar rounds. One soldier, a gunner atop a Humvee, was hit in the face. Both were quickly evacuated and are expected to recover.

U.S. helicopter gunships rushed to the scene, swooping down low over the graveyard and spraying militia targets with machine gun and rocket fire.

Close to home

In midafternoon, fierce fighting broke out near al-Sadr’s home between his militia and a combination of U.S. and Iraqi troops.

As the troops arrived, they came under fire from apartment buildings and a school and at least one U.S. officer was killed. The troops called for help and two Maverick missiles were fired into the school, destroying it.

During the fighting, a fuel tanker exploded as U.S. forces fired on Al Mahdi militia members hidden behind the vehicle.

Some al-Sadr loyalists had taken up positions in a nearby maternity hospital, and about 10 of them fled as U.S. and Iraqi soldiers entered, witnesses said. “We begged them not to come into the hospital because we were afraid the Americans would shoot at us,” said one hospital staffer, who would not give his name.

As the battle proceeded outside, six hospital employees and three patients huddled in a corner of the three-story cement building, located a half-block from al-Sadr’s nondescript home. About two hours after the school was blown up, one of the patients in the hospital gave birth, doctors said.

Doctors from the hospital tried to help a civilian hit by a rocket-propelled grenade, but the man was already dead.

Down the street, Iraqi police entered al-Sadr’s home, and were later joined by U.S. intelligence officers apparently searching for documents or other evidence.

Iraqi forces, meanwhile, fought al-Sadr’s militia after they bombarded the main police station with more than 25 mortars rounds. According to U.S. radar, the mortars were launched from inside the courtyard of the Imam Ali shrine.Several hundred residents were said to be fleeing Najaf, but military officials disputed such claims. About 300 residents had protested Wednesday, calling for a cease-fire to spare their city from more violence.

Fighting between al-Sadr’s militia and U.S. and Iraqi troops began last Thursday, with the two sides blaming each other for starting the hostilities. Al Mahdi militia also battled U.S. troops during the spring until a cease-fire was declared in early June, which left al-Sadr’s forces intact.

Military officials have indicated that this time, pressure will continue until al-Sadr’s forces give in or are killed.