KUFA, Iraq  — A car bomb left at least two people dead and 20 injured near the "Green Zone," and fighting raged in the Shiite holy city of Kufa (search) early Monday, further eroding a deal to halt clashes with followers of a radical Muslim cleric.

On Monday ambulances rushed to the scene of the car bomb that rocked Baghdad near the headquarters of the U.S.-led coalition in Iraq.

The blast occurred about 500 yards from the place where the head of the Governing Council (search) was assassinated in a car bombing on May 17. It wasn't clear if the attack was caused by a homicide bomber or what the target of the bomb was. Residents said there were no government officials living in the immediate vicinity.

U.S. soldiers fired shots in the air to disperse crowds that gathered after the blast, which shattered glass in shops and homes across a wide area.

"It felt like our house was lifted into the air and came down with the bang," said Faleh Hassan, 40, whose home is 10 yards away.

Hours later, U.S. troops blocked a major road that leads to the "Green Zone," a security area around the U.S. headquarters in central Baghdad, to defuse a second car bomb they found.

In Kufa fighting that broke out Sunday and continued early Monday, attackers ambushed a patrol with small arms fire, killing one U.S. soldier, and fired a rocket-propelled grenade on a tank, killing another American. The fighting also killed an Iraqi and injured eight others, hospital officials said.

Shiite militiamen accused U.S. troops of firing near the main mosque, damaging its outer marble wall. The bodies of two slain fighters loyal to firebrand leader Muqtada al-Sadr (search) lay on the mosque's blood-soaked floor, covered with blankets.

"They have no respect for holy sites or for human rights," said one fighter who gave only his first name, Abu Sayf. "This is a violation to the truce. We are committed, but they have no commitment."

In a report from Kufa, a reporter embedded with 1st Armored Division troops spoke of a "major firefight" which broke out late Sunday when soldiers tried to secure a police station. Soldiers were quoted as saying it was the most intense fighting in the area in the past six weeks.

Two other U.S. soldiers died in separate incidents over the weekend. A Task Force 1st Armored Division soldier died Sunday and two others were injured when a roadside bomb exploded south of Baghdad, the military reported. A Stryker Brigade soldier also died Sunday from wounds following a mortar attack Saturday in the northern city of Mosul.

More than 800 service members have died since the beginning of military operations in Iraq.

In Baghdad, assailants ambushed a convoy of Britons on a northern Baghdad highway, killing one Iraqi security guard and a bystander, officials and witnesses said.

The attack occurred before dusk on Sunday as three sport utility vehicles headed south toward the city center. Gunmen in an approaching vehicle opened fire, sending three of the four SUVs careening off the road into barricades.

Two witnesses, Khalid Zaalan, 22, and Qays Hussein, 15, said there was a shootout, and armed Western men jumped from the wrecked SUVs, commandeered a passing car at gunpoint and escaped.

In London, the British Foreign Office said four Britons and another Iraqi jumped out of the vehicles, flagged down a passing Iraqi vehicle and escaped. None of the Britons was hurt but the Iraqi was wounded, the statement said.

A Foreign Office spokeswoman dismissed as rumor some witness reports that some Western-looking men were abducted by the attackers.

A family of three was caught in the crossfire, according to Dr. Mazhar Abdullah of the nearby al-Sadr hospital. The husband was killed and his six-months-pregnant wife was seriously injured, the doctor said.

Roadside bombs also exploded in the southern city of Basra, where five policemen were injured, and in Samawa, where a U.S. convoy was targeted.

The heaviest fighting took place in the twin cities of Najaf and Kufa, 100 miles south of Baghdad, Shiite politicians sought to save a three-day-old agreement with al-Sadr to end the standoff with U.S. soldiers in the holy city and restore government control there.

Al-Sadr's fighters took over in early April after occupation authorities cracked down on his militia, closing his newspaper, arresting a key lieutenant and announcing an arrest warrant against him for the murder of a rival cleric.

Under a deal announced Thursday with Shiite leaders, al-Sadr agreed to remove his fighters from the streets and begin a dialogue with the clerical hierarchy over the future of his militia and the warrant against him. U.S. troops agreed to halt offensive operations around Najaf and Kufa.

However, daily clashes since the agreement was announced have threatened to scuttle the deal. About 150 policemen sent from Baghdad to replace local policemen who deserted returned to Baghdad — ostensibly because of lack of accommodation for them.

The move threatens to delay the start of joint patrols — considered the key to shoring up security in the city as al-Sadr's militiamen return to their homes.

Despite the clashes, Governing Council member Ahmad Chalabi, who traveled to Najaf to help shore up the agreement, told reporters there was a "a momentum for peace" and the fellow Shiite leaders were "working to implement this so we can avoid any clashes."

Chalabi met with al-Sadr's aides Sunday night and afterward told reporters he had worked out a "detailed plan for the implementation" of the truce agreement and would present them to U.S. and Iraqi officials Monday.

"We ask both sides to stop hostilities," Chalabi said.

Meanwhile, a dispute between Iraq's Governing Council and U.S. occupation authorities over the president of a new transitional government delayed formation of the new Cabinet to take power June 30.

A council member, who spoke on condition of anonymity, said the U.S. governor of Iraq, L. Paul Bremer, and special U.N. envoy Lakhdar Brahimi were exerting "massive pressure" on the U.S.-appointed group to choose former Foreign Minister Adnan Pachachi, a Sunni Muslim councilman.

However, the current council chairman, civil engineer Ghazi Mashal Ajil al-Yawer, was believed to be the choice of most of the 22 members.

Council members conferred through the night Sunday, but opted to postpone a session set for Monday.