Insurgents have killed 600 Iraqis since the new government was formed. The IISS report said: “Best estimates suggest that it will take up to five years to create anything close to an effective indigenous force able to impose and guarantee order across the country.”

The report said that, on balance, U.S. policy over the past year had been effective in emboldening regional players in the Middle East and the Gulf to rally against rogue states. But it warned that the inspirational effect of the intervention in Iraq on Islamist terrorism was “the proverbial elephant in the living room. From al-Qaida’s point of view, [President] Bush’s Iraq policies have arguably produced a confluence of propitious circumstances: a strategically bogged down America, hated by much of the Islamic world, and regarded warily even by its allies.”

Iraq “could serve as a valuable proving ground for ‘blooding’ foreign jihadists, and could conceivably form the basis of a second generation of capable al-Qaida leaders … and middle-management players,” the report said.

Tuesday, a statement was placed on an al-Qaida Web site claiming that Abu Musab al-Zarqawi, the Jordanian-born Islamist who has claimed responsibility for numerous attacks, kidnappings and beheadings of foreign hostages in Iraq, had been injured. The statement, whose authenticity could not be verified, asked Muslims to pray for his recovery but did not say how or when he was injured. It said: “Let the near and far know that the injury of our leader is an honor, and a cause to close in on the enemies of God, and a reason to increase the attacks against them.”

There were reports earlier this month that the U.S. military was investigating whether al-Zarqawi was at a Ramadi hospital and whether he was ill or wounded.

The think tank report points to U.S. estimates that there are between 12,000 and 20,000 hardcore insurgents in Iraq. It says that Iraqi politicians have been keen to blame the rise in sectarian violence on foreign jihadists. “But they may have overstated their case.”

Insurgents demonstrated their ability to hit U.S. forces in the heart of the Iraqi capital Tuesday when a military convoy was targeted by a car bomb, killing three U.S. troops. A fourth U.S. soldier was killed in a drive-by shooting as he sat atop a Bradley fighting vehicle at an observation post in central Baghdad. The U.S. military also announced Tuesday that four soldiers had been killed by a roadside bomb on Monday in Haswa, 30 miles south of the capital, bringing the total number of U.S. fatalities since May 22 to 13.

Tuesday, Iraq’s new interior minister, Bayan al-Jabr, who is also a member of the ruling Shiite-led alliance, met with two prominent Sunni Muslim figures in an effort to reduce sectarian tensions. Officials said the meeting was designed to “curb all hateful attempts aiming to plan sectarian sedition among the Iraqi people.”

Toby Dodge, senior fellow at the IISS and an expert on Iraq, estimated Tuesday that there are about 1,000 foreign fighters in Iraq “perfecting the use of car bombs” and causing more problems across the region, including Saudi Arabia. There seemed to be no “viable exit strategy” for foreign troops.

The warnings followed another series of blasts across the country Wednesday that killed at least 71 people and wounded more than 100.

Since the new government led by Prime Minister Ibrahim al-Jaafari was announced on April 28, nearly 400 people have been killed and up to 1,000 wounded in rebel attacks. The bombers have targeted civilians as well as Iraq’s nascent security structures and the U.S.-led forces. The security official said that as well as car bombs there had also been a rise in the number of “walk-in” suicide attacks. He said the U.S. military and Iraqi authorities were increasingly alarmed at the cooperation between foreign militants in Iraq and “the domestic insurgents.” This could turn “the homegrown resistance into a breeding ground for a major jihadi movement.”

A U.S. military spokesman in Iraq said the insurgency was averaging 70 attacks a day this month, up from 30 to 40 in February and March.

Wednesday the bloodshed continued, with five suicide bombings — one each in the central Iraqi towns of Hawija and Tikrit, and three in Baghdad. The heaviest casualties occurred in Hawija at a police and army recruitment center. Witnesses said a man with explosives strapped to his body slipped through a security cordon and blew himself up in a line of 150 people. Iraqi police said at least 30 people had been killed and 35 injured.

In Tikrit, 80 miles north of Baghdad, at least 33 people were killed and 80 wounded when a suicide car bomb exploded in a market near a police station. Police said the station had been targeted, but the bomber swerved into a crowd because he was unable to breach the security barriers. “What I saw was a tragedy,” said Ibrahim Mohammed, a migrant worker. “Some people had their heads torn off by the explosion, some were burned, some were ripped to pieces.” The group Ansar al-Sunn later claimed responsibility.

Three car bombs targeting a police station and patrols exploded in Baghdad, killing at least four people and wounding 14, police said.

Iraq’s new interior minister, Bayan Baqir Jabr, claimed the government had a grip on the security situation, saying committees of police and military officials had been formed to implement a plan to protect Iraqi cities. He gave no details.

U.S. forces continued with a large-scale offensive in the western desert near the Syrian border, aiming to disrupt militant supply lines into Iraq. Operation Matador was launched after intelligence suggested followers of Abu Musab al-Zarqawi had fled there from the restive towns of Fallujah and Ramadi, also former targets of U.S. attacks.

The escalation in violence has not prompted a rethinking in London or Washington over an early withdrawal of troops. Downing Street acknowledges the violence has become heavier recently, blaming a three-month political vacuum as Iraqi politicians argued over the formation of a transitional government, completed this week, and an improvement in the efficiency of the rebels. Officials are adamant British troops will not be withdrawn until Iraqi security forces can begin to take over.

The U.S., Britain and other coalition forces are mandated by the U.N. to remain in Iraq only until the completion of the political process in December, when elections are set to take place, but they admit the lack of readiness among Iraqi forces means they may stay longer.

Kim Howells, the new Foreign Office minister responsible for the Middle East, Wednesday described the attacks as “horrendous.” He said: “These and other recent tragic incidents are the desperate acts of those seeking to destabilize the successful democratic political process … They will not win.”

In the United States, meanwhile, the Senate voted unanimously for $76 billion to fund this year’s military operations in Iraq. The vote also increased payments to families of soldiers killed in combat from $12,000 to $100,000.

Sunday, as U.S. troops widened their control of the insurgent bastion of Fallujah, Marines found what appeared to be the mutilated body of a Western woman. Only two foreign women are being held by kidnappers: Margaret Hassan, 59, the British-Iraqi director of the charity Care International, and Teresa Borcz Khalifa, 54, a Polish woman who has lived in Iraq for many years. One officer said he was “80 percent sure” the body was a Western woman. It was found in the street, covered with a cloth soaked in blood.

Meanwhile, Arab satellite TV network al-Jazeera, quoting unidentified sources, reported that an Islamist group had freed two female relatives of the interim prime minister, Ayad Allawi, but were still holding his cousin hostage. An unknown Islamist group seized the prime minister’s first cousin Ghazi Allawi, 75, along with his wife and daughter-in-law, in Baghdad on Tuesday.

Although the elections may be only weeks away, Salih said, he hoped that by then the violent rebellion that has gripped Iraq since America’s invasion last year will have diminished. “My hope is we will have stabilized many of the areas that have become pockets of foreign fighters and insurgents, because it is vital that every Iraqi citizen is able to exercise the basic right to choose a government that has been denied to them for so long,” he said.

Sunday, however, there was continued violence in other parts of the country — including Mosul in the north, Ramadi and Baghdad — and there was still fighting in some parts of Fallujah. U.S. and Iraqi troops went house to house through other districts looking for weapons and hidden fighters in the city, and soldiers from the 1st Infantry Division destroyed underground bunkers in the city’s southeast used by insurgents to store supplies.

“The city has been seized,” Gen. John Abizaid, of the U.S. central command, said. “We have liberated the city of Fallujah.” But it could take several days of fighting to clear pockets of resistance, he added. Lt. Gen. John Sattler, commander of the 1st Marine Expeditionary Force, said: “The perception of Fallujah being a safe haven for terrorists, that perception and the reality of it will be completely wiped off before the conclusion of this operation.”

The U.S. military said 38 American soldiers had died in the six-day offensive to recapture Fallujah, and 275 had been wounded. Allawi said 400 insurgents had been arrested, while one American commander told the Associated Press that 1,200 insurgents had been killed. There was no information on civilian casualties, but a convoy of food and medical supplies brought on Saturday by the Iraqi Red Crescent was not allowed to enter the city. A second Red Crescent convoy will take food and supplies Monday to the thousands of refugees living in often appalling conditions in villages around Fallujah.

There is a growing concern that the minority Sunni community, from which the most extreme elements of the insurgency have emerged, will not take part in the elections. The influential Muslim Clerics Association has ordered a boycott of the vote, and the Iraqi Islamic Party, a mainstream Sunni political group, has pulled out of the government.

There is also the logistical problem of securing the estimated 7,000 to 9,000 polling centers across Iraq. Elections will be held for the 275-seat Iraqi parliament and for the Kurdistan regional assembly at the same time. “Holding elections will be a great challenge,” said Salih, former prime minister of the Kurdistan regional government in Sulaymaniya.

Violence persisted in other areas. Insurgents seized control of the Sheikh Fatih police station in the northern city of Mosul, and also burned down the governor’s house. At least six Iraqi National Guardsmen were killed and three injured. Sunday night explosions and heavy gunfire echoed across central Baghdad. A rocket landed near hotels and houses used by foreign contractors and journalists, although there appeared to have been no casualties. More than a dozen insurgents attacked the Polish Embassy in Baghdad with automatic weapons. No one was reported killed or wounded.

And U.S. helicopters and tanks fired at targets in Baiji, a northern city that houses Iraq’s biggest oil refinery.

It was an indication that the prime minister, who has been cultivating his image as a no-nonsense leader, is aware of the risks involved if he or the US forces make a false move in Najaf. If the plan to neutralise Mr Sadr works, Mr Allawi will then have only the insurgency in Sunni areas to worry about. If it fails, his government’s aim of restoring security so that elections can be held will be little more than wishful thinking.

For while there is little doubt that a US and Iraqi military campaign could dislodge Mr Sadr’s dedicated but poorly trained al-Mahdi fighters, the political fallout could inflame mainstream Shia opinion, which broadly disapproves of Mr Sadr and which Mr Allawi desperately needs on his side. In the course of either arresting or killing Mr Sadr and his young armed followers, US and Iraqi forces run the risk of being seen as “desecrators” of sacred Najaf, an act that could linger in the minds of any disaffected Shia  the majority in Iraq.

“Anything affecting the holy shrine may result in disaster,” said Adel al-Adib, a senior official of the Dawa party, a major Shia group which is part of the interim government. “The reaction will last for a long time.” The short-term consequences could be destabilising, too. “It could be portrayed as the first real atrocity of the new interim government,” Mr Adib said. “Sadrists have already started likening Mr Allawi to Saddam. If the military way is the only one pursued, it could fail and the government could lose credibility, and where would that leave us on the next step to complete sovereignty? The danger is the government will indeed be seen to be doing things like the former regime.”

Mr Sadr, who is in his early 30s, benefits from the popularity of his father, a Shia cleric killed by Saddam Hussein’s regime in 1999.

He knows he cannot rival the Shia Ayatollah Ali al-Sistani in terms of religious standing, but is vying to become the paramount Shia political power. And while Mr Sistani remains away from Najaf  he has just left hospital in London after heart surgery  there is a danger that Mr Sadr’s control of Najaf will solidify.

Whatever Mr Allawi thinks of Mr Sadr he is variously described as unstable or stupid by government officials  he has tapped a vein of Iraqi and Arab nationalism, particularly among the poor, alienated Shia youth.

The unrest has prompted a number of senior Shia figures in the south to call for secession from Baghdad.

Some foreign diplomats question whether the destruction of Mr Sadr would really have a beneficial effect.

“Destroying the Mahdi army may fragment a group of youths who at least for now are under some sort of control,” one said. “If you remove their leadership, then the Shia resistance may get into a macho contest with the Sunni resistance over who can outbomb the other.”

But many agree that the costs of inaction are equally heavy. The number one on most Iraqis’ wish list is security, followed by jobs, services and a chance to have a say in their own future.

Until now Mr Allawi’s unelected administration has bought some breathing space by promising a secure environment that allows the reconstruction of the country and fair elections.

“If the interim government cannot meet its first major challenge, then its credibility will lie in tatters,” said a western diplomat.

“This is a chance for the new Iraqi state to establish the primacy of the state and the rule of law. National elections with an armed militia on the loose is unthinkable.”

Mr Allawi has gone out his way to open the door to Mr Sadr.”If the Iraqi people want Mr Sadr to be their leader, they will be able to elect him,” he said again yesterday.

Mr Sadr refuses to recognise the interim government. But his decision this week to agree to the terms of the national conference, plus the presence of his supporters there, indicate some willingness to deal with new institutions in Iraq.

“I came here from Najaf so my voice could be heard,” said one woman, a teacher. “Do you think I’m going to be silenced by a few mortar shells?”

She, like everyone else, had come from across Iraq yesterday, defying the parlous security situation. There were tribal sheikhs from Kirkuk, women’s activists from Basra, businessmen from Fallujah and former peshmerga from Kurdistan. There were Muslims, Yezidis, Shabaks, Christians, Turkomen, Kurds and Arabs. There were teachers, judges, doctors and preachers.

It was the first time since the fall of Saddam that Iraq’s disparate and often discordant voices could be heard in one place. And for those desperate to see some light at the end of the tunnel it was a long-awaited first step.

Held under the shadow of the insurgency and counterinsurgency, that the conference was taking place at all was seen as a victory.

“Your presence here today is the biggest challenge to the forces of darkness that want to tear this country apart,” the prime minister, Iyad Allawi, said in his opening remarks. “This is not the end of the road; it is the first step on the way to democracy.”

The task before them is to elect Iraq’s first post-Saddam assembly and start a “national dialogue” on the country’s most pressing problems. It was words, not bullets, that did the fizzing. A delegate from the province of Anbar in the Sunni triangle called for self-rule for his region. Another from Basra complained about the marginalization of Iraq’s second city. A woman from Najaf raged against the occupation of her hometown — not by U.S. forces but by the black-shirted young men of Muqtada al-Sadr’s Mahdi army.

From the outset, the violence in the holy city of Najaf threatened to dominate the proceedings. If the Americans or the interim government were expecting a pat on the back for their tough stand, they had to think again.

As the opening session wound up — after speeches from the Iraqi president, Ghazi al-Yawar; the prime minister; and the U.N. special representative, Ashraf Qazi — a group of Shiite delegates standing near the back started to heckle, then to chant.

“Yes, yes Najaf,” they shouted, punching the air with clenched fists. “We want the president to hear what we have to say. Unless the bloodshed in Najaf stops, we will withdraw.”

Iraq’s new political leaders were sanguine. “The point of this conference is to get talking to one another, to get some kind of national dialogue going,” said Hamid al-Khifai, the cabinet spokesman.

“Najaf is an emotive issue and it is understandable that it be raised. If you had shouted like that under Saddam you would have been taken out and shot.”

The conference organizers decided to deal directly with the issue. They passed a resolution calling on all sides in the conflict to stop the violence, and appointed a negotiating committee to try to find a solution.

Then it was on with other important business: the election of the interim assembly and the creation of four working groups dealing with topics such as security, transitional justice and reconstruction. The delegates will elect 80 of the 100 seats in the assembly, with the remaining 20 going to former members of the governing council.

The assembly, or Iraqi National Council, will have the power to veto legislation with a two-thirds majority, approve Iraq’s 2005 budget and appoint a new prime minister or president should either resign or die in office.

There were of course some who stayed away, whether out of pique at not being given the prominence they thought they deserved or because they preferred not to have anything to do with the interim government or its American backers.

Allawi insisted the political process was open to all. But the selection of delegates had been criticized for not being inclusive enough, and organizers were accused of stacking the conference with pro-government delegates.

The most important absence was that of Sadr’s movement. Although organizers continued to insist that he or his representatives were welcome, the militant cleric under siege in Najaf shunned the invitation. There was no show either by Ahmed Chalabi, the controversial leader of the Iraqi National Congress. Chalabi is wanted on counterfeiting charges.

“This will be no magic wand,” said Fouad Massoum, the conference chairman. “We cannot solve all of Iraq’s problems in three days, but we have to start somewhere.”