Radical cleric Moqtada al-Sadr refused to meet a delegation of Iraqi political and religious leaders who want him to call off his uprising.
An aide to the Shi'ite cleric told reporters accompanying the delegation that Sadr could not meet them "because of continued aggression by the Americans".
The delegation met with Sadr's top aides for three hours at Najaf's holiest shrine, the Imam Ali Mosque, where the young cleric and many of his militia are holed up.
"We had a feeling that the office of Moqtada al-Sadr is positive," Sheikh Hussein al-Sadr, head of the eight-member delegation said. "The message reached Moqtada al-Sadr. We hope there will be better circumstances to meet with him."
The delegation then drove to the governor's headquarters as fighting raged in a nearby cemetery, where US gunship helicopters fired on rebel positions. The volleys were met with mortars and machine-gun fire aimed at US and Iraqi government forces.
The failure to hold face-to-face talks increases the likelihood of a US-led offensive to crush Sadr's Mehdi Army and armed supporters.
Sadr's swelling support has led to US fears that launching a full-scale offensive could lead to him becoming a credible future leader of the country. If he were killed, then he could become a martyr around which anti-Western feeling could rally - stymieing stable government and potentially leading to disruption to Iraq's oil and gas supply.
If US forces cause any serious damage to the shrine would enrage millions of Shi'ites around the world, including those who make up about 60 per cent of Iraq's population.
Agencies