Iraq's most influential Shia leader has urged people to march on Najaf, where clashes are raging at a holy shrine.
Najaf has seen fierce battles since early August
Grand Ayatollah Ali al-Sistani, 73, now back in Iraq after heart surgery in the UK, will soon go to Najaf, aides say.
Many people think he could play a crucial role in efforts to end a stand-off between US-led forces and Shia militants holed up in a shrine complex.
Since fighting resumed three weeks ago, troops have edged closer to the Imam Ali shrine, the holiest in Shia Islam.
Ayatollah Sistani returned to Iraq a day after the interim government again warned it would end the stand-off by force in a matter of hours.
On Wednesday, tank and machine-gun fire was heard and plumes of smoke rose amid reports that US forces had moved closer still to the Imam Ali complex which is controlled by fighters loyal to radical Shia cleric Moqtada Sadr.
In other Iraq developments:
- A US army report into the abuse of Iraqi prisoners at Abu Ghraib jail is expected to incriminate a further two dozen military personnel.
- At least three people are killed as US aircraft raid the restive city of Falluja, hospital officials say.
- Poland's embassy in Baghdad comes under attack by mortar shells or grenades, but there are no casualties or serious damage, Polish sources say.
Ayatollah Sistani landed in Kuwait and then crossed into Iraq in a convoy of vehicles after spending three weeks in London where he had an operation to unblock a coronary artery.
Hundreds of people waving Iraqi flags flocked to the house in the southern city of Basra where he was resting, the AFP news agency said.
Ayatollah Sistani issued a statement, which was read out on his behalf in Basra. "We ask all believers to volunteer to go with us to Najaf," it said.
"I have come for the sake of Najaf and
I will stay in Najaf until the crisis ends."
BBC Middle East analyst Roger Hardy says that Ayatollah Sistani's authority is such that thousands of his followers are likely to heed his call to march.
Earlier this year, the Shia leader was instrumental in arranging a ceasefire between Mr Sadr's Mehdi Army militia and US troops in a similar uprising.
Negotiations mediated by the ayatollah's representatives are reported to be continuing behind closed doors and observers say there is renewed hope that these efforts will bring about an end to the crisis now that Ayatollah Sistani has returned.
A spokesman for Mr Sadr, who has not been seen in public for many days, said late on Tuesday that the cleric was prepared to talk.
"We are ready to negotiate to put an end to the suffering," Ali Smeisim told reporters.
Iraq's interim defence minister earlier said the government was losing patience.
Heavy fighting rocked the old city in Najaf again early on Wednesday, and witnesses said US warplanes fired on the area.
Iraqi forces in Najaf alongside US troops have sealed off all the streets in the area and are preventing cars from entering.
But reports say the Mehdi Army still control the alleyways leading to the shrine that are too narrow for tanks.