Shia fighters are expected to begin to withdraw from the Iraqi city of Najaf on Friday, where they have been battling US forces.
The US military says it has the right to patrol in Najaf
A spokesman for radical cleric Moqtada Sadr said only those who came from outside the holy city would leave - armed fighters from Najaf would stay.
He called on Iraqi police, not US troops, to patrol the streets.
It raises hopes to an end to weeks of fighting, after a previous truce attempt failed to stop the violence.
Mr Sadr's spokesman, Qais al-Khazaali, said on Thursday: "Starting tomorrow, we shall start or continue withdrawing any armed presence and freeing all suspects."
After hours of talks between Shia negotiators, the spokesman told the BBC that although forces who do not originally come from Najaf would pull out, residents of the city who support him would stay and would not give up their arms.
There was no immediate word on whether the Americans have agreed to keep troops off the streets, or whether the move forms part of a new truce agreement.
The announcement followed clashes which killed at least five civilians and several Shia fighters in Najaf's twin city of Kufa on Thursday.
Doctor Mohammed Abdul Khazem at Furat al-Awsat hospital said: "There were children among the casualties."
The US military said troops had been searching a school where members of Mr Sadr's militia were thought to have launched attacks, when they came under fire.
"While approaching the school, soldiers came under mortar, rocket-propelled grenade and small arms attack. Soldiers returned fire, killing a significant number of attackers. Three soldiers were wounded," it said in a statement.
The US insists it has the right to patrol in Kufa and Najaf, though Mr Sadr and other Shia leaders have said it amounts to aggression against the holy cities.
However, on Thursday in Najaf, Iraq's leading Shia authority, Ayatollah Ali Sistani, gave his cautious approval to the new Iraqi government due to take over at the end of the month - a boost to coalition attempts to increase stability in Iraq.