An amnesty measure which may see thousands of people on the margins of Iraq's insurgency pardoned has been signed into law.
US and Iraqi forces have been targeted by insurgents
Prime Minister Iyad Allawi said he hoped it would allow low-level criminals to rejoin mainstream society.
The amnesty will cover those dealing in small arms or explosives and helping or financing the insurgency.
The move came on a third day of clashes between US forces and Shia Muslim militiamen in the city of Najaf.
The interim government has also ordered the closure of the Baghdad office of Arabic television station al-Jazeera for the next four weeks.
Mr Allawi accused al-Jazeera of inciting hatred and racial tension.
But the station's editor in chief, Ahmed Sheikh, told the BBC the Iraqi government had been trying to coerce al-Jazeera into positions contradictory to its editorial policies.
On Saturday evening, Iraqi police entered the station's Baghdad offices. They were seen arguing with al-Jazeera employees inside the building before ordering them all to leave.
'Wasting their lives'
Under the 30-day amnesty, minor criminals will be given the chance to turn themselves in and receive pardons.
But Mr Allawi said major criminals - such as murderers, rapists, looters and anyone attacking government buildings - would be excluded from the amnesty and hunted down.
Those suspected of murder will not be covered by the amnesty
"This law is directed toward individuals who have committed minor crimes and have not yet been apprehended or prosecuted," Mr Allawi told reporters.
"This order has been established to allow our citizens to rejoin civil society and participate in the reconstruction of their country and the improvement of their lives,
instead of wasting their lives pointlessly toward a lost
Iraq, he added, had gone through too many wars and too much hardship.
The amnesty offer has been under discussion since Iraq's interim government took over on 28 June.
On the violence in Najaf, Mr Allawi said the situation was under control and denied Shia militants were to blame.
Correspondents there said the fighting appeared to be at a lower level than the previous two days.
The US military said it had killed 300 militiamen during Thursday and Friday, a period that also saw the deaths of two US marines.
A spokesman for the militia insisted that only 36 of its fighters had been killed over the two days.
This week's fighting in Najaf is the worst violence there since a ceasefire between US forces and Shia militants was agreed in June.
Mr Allawi blamed local criminals for the violence and said he would like to see the man who most accuse of being behind the trouble, Moqtada Sadr, engaging more in the political process in Iraq.
Mr Allawi said he had received positive messages from the cleric and was still inviting him to take part in elections next year.
Iranian leaders have expressed outrage at what they described as attacks on the holy shrines of Najaf.
Meanwhile, a man from San Francisco has admitted staging a hoax video that appeared to show him being beheaded in Iraq.
Benjamin Vanderford from San Francisco said he made the tape months ago as part of his campaign for local office.
Separately, Nato says it has sent four officers to Iraq to prepare for a mission to train members of the new Iraqi armed forces.
The main contingent of about 45 officers from several Nato countries is expected to be deployed next week.