Hundreds of civilian refugees have streamed out of Falluja as overnight clashes gave way to calm by dawn after intense efforts to arrange a ceasefire.
International relief groups say 470 Iraqis have been killed there and 1,200 wounded, including 243 women and 200 children, in the past week.
More than 50 US or allied troops have been reported killed across Iraq in the bloodiest spasm of fighting since US-led forces ousted Saddam Hussein a year ago.
A member of Iraq 's US-appointed Governing Council said a 12-hour truce agreed in Falluja could be extended. Mahmud Othman said a delegation including council representatives had returned to Falluja today to pursue negotiations.
Qahtan al-Rubaie, from the Iraqi Islamic Party, a Sunni group represented on the council, said the truce was holding. "Our sources in Falluja say hospitals have not received casualties from midnight to 10 a.m. today.
Military operations on both sides have almost stopped, with only sporadic bursts of gunfire," said Rubaie, who took part in Saturday's talks.
US forces attacked Falluja, a stronghold of Sunni insurgency west of Baghdad, last week in response to the murder and mutilation of four American private security guards ambushed in the town.
The rebels want US forces to lift their siege and leave the town. The US military says Falluja leaders must hand over the killers of the four Americans, and gunmen must surrender.