US forces killed 35 militants and destroyed an office run by radical Shia cleric Moqtada Sadr in Baghdad overnight, the US military says.
The cleric's office was reduced to rubble after fierce gunbattles
US armour levelled the cleric's stronghold in the Sadr City slum area, Brigadier General Mark Kimmitt said.
Members of the cleric's Mehdi Army militia fired grenades and small arms in running battles with US troops.
Later a convoy of US Marines entered the volatile city of Falluja for the first time in more than a month.
They were accompanied by Iraqi troops from the Falluja Brigade, who have taken over the task of patrolling the city.
The convoy is being seen as a test of the truce agreed with the insurgents at the end of April.
The death toll in Sadr City has not been confirmed by Iraqi sources.
Witnesses said earlier the cleric's office had been flattened by a bomb dropped by a US warplane - but this was denied by General Kimmitt.
In another development, two foreign workers died after gunmen fired on a vehicle in the northern Iraqi city of Kirkuk.
Police said a South African and Iraqi man were killed in the shooting, which occurred as they drove into the city. A New Zealander died later of his wounds.
Over the past week, the Americans have been trying to end Mr Sadr's resistance in the holy places of Karbala, Kufa and Najaf.
Mr Sadr wants an end to the US occupation and is vehemently opposed to any co-operation with the coalition.
BBC world affairs correspondent Peter Biles says Mr Sadr has a strong following among the poor in the slums of Baghdad, rather than the Shia in the south of Iraq.