Iraq's leading Shia cleric, Grand Ayatollah Ali al-Sistani, is leading a convoy of thousands of people towards Najaf in an effort to end the conflict.
The holy city has endured three weeks of combat
He is expected to unveil an initiative to end a three-week stand-off there between US forces and Shia fighters.
Meanwhile, an explosion at or near a mosque in the nearby city of Kufa has caused large number of casualties, reports say.
Two marchers were killed in a clash in Kufa late on Wednesday.
Ayatollah Sistani returned to Iraq on Wednesday after heart treatment abroad.
He set out from the southern city of Basra early on Thursday to make the journey of 400km (250 miles) to Najaf in a convoy of cars and buses packed with Shia Muslim faithful.
Among the convoy were supporters of radical cleric Moqtada Sadr, whose fighters are believed to remain in control of Najaf's Imam Ali shrine complex.
Helicopters hovered above the stream of vehicles headed to Najaf while armed guards in sports utility vehicles protected the ayatollah.
The journey was expected to take several hours.
In Basra, Ayatollah Sistani met representatives of the Iraqi interim government.
His plan envisages weapons-free zones in both Najaf and Kufa, a Sadr stronghold, aides said.
Ayatollah Sistani has brokered peace in Najaf before
Iraqi police would replace foreign troops in the demilitarised city while compensation would be paid to people affected by the fighting, they said.
He also called for "all believers" to march to Najaf - his home city - to try to end the military confrontation.
Najaf's police chief has asked people to stay away.
"They could be putting their lives in danger," Maj Gen Ghalib al-Jazaari was quoted as saying by AP news agency.
Ending the crisis
US warplanes bombed targets in Najaf late on Wednesday and Iraqi and US troops have imposed tight controls on the city, preventing cars from entering.
Ayatollah Sistani left Iraq for medical treatment in London just as the uprising in Najaf began. He returned in a convoy from Kuwait and was met with a rapturous welcome.
Correspondents say there are hopes Ayatollah Sistani can finally end the stand-off. The ayatollah was instrumental in brokering an earlier ceasefire.
"I have come for the sake of Najaf and I will stay in Najaf until the crisis ends," Ayatollah Sistani said on Wednesday.
In other developments:
- Militants claimed to have kidnapped a relative of Iraqi Defence Minister
Hazem Shaalan, demanding an end to all military operations in Najaf
- Two Turkish companies said they were withdrawing their staff from Iraq after Turkish media reported that two engineers were being held by militants and were being threatened with beheading
- At least three people were killed as US aircraft raided the restive city of Falluja, hospital officials said