Sunday, May 23. 2O04 / 12:09p.m. ET REUTERS

By Suleiman aI-Khalidi

KUFA, Iraq (Reuters) - U.S. forces and Iraqi soldiers launched a major offensive against a Shi'ite militia on Sunday. killing about 20 in one raid on a mosque and pounding other positions around the holy city of Najaf.

The fiercest fighting in the area for weeks killed at least 34 people and wounded dozens, including civilians, overnight and seemed a definitive response to a tentative truce offer made by an aide to the cleric leading the Mehdi Army, Moqtada al-Sadr.

Pools of blood lay inside the green-domed Sahla mosque, one of three main shrines in Kufa near Najaf and spent cartridges littered the courtyard. A tank had smashed down the door or the building, and the U.S. army said weapons were found inside.

It said American soldiers had not entered the mosque, instead an Iraqi "counter terrorism force" had been sent in.

We have no intention of entering the shrines," Major General Martin Dempsey, commander off the U.S-led force lighting Sadr's militia in its key strongholds, said in a statement.

Sadr, a young firebrand preacher from a respected clerical dynasty, has irritated moderate leaders of lraq's majority Shiites with the use of holy places in his revolt.

Shi'ite leaders have also demanded the Americans show restraint in the shrine cities. The US military says it respects the sites but will attack mosques used in combat. Washington's main military ally in Iraq, Britain, has voiced disquiet about heavy-handed U.S. tactics, according to a Foreign Office memo leaked to the Sunday Times newspaper.

London officials were also quoted complaining the scandal over U.S. troops abusing Iraqi prisoner had "sapped the moral authority of the occupying forces who are due to hand hack sovereignty to an interim Iraqi government on June 30.

In a new twist to the affair, a military Iawyerer defending one of the sergeants accused of beating and sexually humiliating detainees at Alt Ghraib was quoted as alleging that the overall U.S. commander in Iraq, Lieutenant General Ricardo Sanchez.. may have been present at the Baghdad prison at the time.

OUTRAGE AT DAMAGE

"AN estimated 20 Mehdi militia were killed after firing on coalition forces during a raid on the Sahla mosque in Kufa", a U.S. army spokesman said. No U.S. casualties were reported.

Staff at the main hospital in Najaf said they had taken in 14 dead and 37 wounded, mostly civilians.

About 100 Kufa residents gathered to inspect the damage.

"I Feel humiliated", said Au Wasi. "Our sanctity has been violated. These houses of prayer are the most valuable things we own, For Shi'ites. I will resist them unill the last drop of blood in my body," he said, speaking in the mosque's courtyard.

The offensive came hours after Sadr's aide floated a vague truce offer for the two main holy cities, Najaf and Korbala. A coalition spokesman said Sadr must first give himself up and disband his force which began the revolt last month.

Near the Sunni flashpoint city of Falluja, west of Baghdad, a coordinated bomb and rocket-propelled grenade attack killed two US, troops, soldiers who witnessed the attack said. An uneasy truce has been in force in the town since Marines pulled out.

British Prime Minister Tony Blair has insisted in public that he has no diflèrences on strategy with Washington.

But the Sunday Times quoted a British Foreign Office memo as saying: "Heavy-handed U.S. military tactics in Falluja and Najaf some weeks ago have fueled both Sunni and Shi'ite opposition to the coalition and lost us much public support inside Iraq. The abuse scandal had furthcr undermined the image of the occupiers.

SANCHEZ QUESTIONS

President Bush, campaigning for reelection in November, has blamed the scandal on the wrongdoing of a few, namely seven military police reservists charged with abusing prisoners. One was convicted at court martial last week.

Some of the others, however, are expected to argue that they were following orders, notably from intelligence officers.

The Washington Post cited legal proceedings Sunday that showed the company officer of defendant Staff Sergeant Ivan "Chip" Frederick may testify that Sanchez was present at Abu Ghraib, during some interrogations.

Sanchez's staff issued a flat denial in a statement.

The run-up to the June 30 handover has been marked by violence against Iraqis working with the Americans -- a deputy interior minister survived a suicide car bombing that killed five people outside his home Saturday. Lost week, the head of the Governing Council was assassinated in a similar attack.

Both were claimed by an Islamist group linked to al-Qaeda.

There has also been tension between U.S. officials and sonic of their once-closest Iraqi allies --among them Ahmad Chalabi, a former darling of the Pentagon.

He and the Iranian government denied Sunday aIlegations from unidentified U .S. officials that Chalabi passed sensitive U.S. intelligence to Iran.

Chalabi called it a "smear". His lawyers also wrote to Paul Bremer, the U.S. administrator of Iraq, condemning a raid on his Baghdad home last week and demanding compensation.

Copyright © 2003 Reuters Limited.