Iraq's interim Prime Minister Iyad Allawi has vowed to "liberate" Falluja amid growing expectation that a major assault is imminent.
US marines have been taking part in intensive drills
US troops have closed all roads in and out of the rebel-held city and Iraqi troops have taken up position nearby.
The BBC's Paul Wood, with US marines, says a substantial ground force is entering the outskirts of the city.
Previous assaults on the city have left large numbers of civilians dead and most of the city's population has fled.
Our correspondent, who is working under US military censorship, says it is not clear whether the Iraqi leader has given the final order to begin the assault.
But he reports there is an assumption among the marines that a major assault is inevitable and imminent. Units are stocking up with large quantities of artillery shells, and the pace of training has increased.
US and Iraqi officials are aiming to flush out insurgents ahead of elections in January.
UN Secretary General Kofi Annan has warned Iraq, the US and UK that an assault on Falluja could alienate ordinary Iraqis and disrupt the planned elections,
The BBC's Susannah Price at the UN says US officials were outraged by Mr Annan's letter, which highlights the divisions over the way to achieve peace in Iraq.
Mr Allawi said the letter, which he received a few days ago, was "very unclear". He said Mr Annan did not present a plan as to what to do, nor was it clear what the UN could do to stop insurgents attacking.
Speaking in Brussels earlier on Friday, Mr Allawi said the window was closing for a peaceful settlement in Falluja.
He has repeatedly threatened an all-out assault on the city if residents do not turn in Jordanian militant Abu Musab al-Zarqawi, who is thought to be based there.
Zarqawi's al-Qaeda-linked group has captured and killed hostages and is blamed for a string of suicide bombings.
"We intend to liberate the people and bring the rule of law," Mr Allawi told a news conference at a European Union summit.
"The Falluja people, most of them, have left. The insurgents and the terrorists are still operating there.
"We hope they will come to their senses, otherwise we will have to bring them to face justice."
Weeks of air strikes
US military said it had carried out five air strikes within seven hours on Friday, destroying a command post, arms caches and rebel positions, Reuters reports.
The US has carried out weeks of "precision strikes" aimed at targeting Zarqawi's fighters and other militant groups.
US and Iraqi officials say there are several thousand fighters holed up in the city, 50km (30 miles) west of Baghdad.
The Iraqi authorities say the fighters are highly organised and led by former army officers from Saddam Hussein's army.
The combat hospital at the main US base near Falluja has set up a morgue and doubled medical staff and supplies in preparation for an expected stream of casualties, AP reports.
The US military has been warning residents of Falluja through loudspeakers and leaflets to leave the city. It estimates that out of a population of 300,000, fewer than 60,000 people remain.
In other developments:
- One US soldier is killed and five wounded when rebels fire at their base on the outskirts of Falluja on Friday, the US military says
- Iraqi Vice-President Ibrahim Jaafari says the election date has been set for 27 January. Mr Allawi later tells reporters in Brussels that no date has been set, although elections will take place by the end of January
- Two children are killed in Muqdadiya, north-east of Baghdad, when a mortar shell intended for a nearby police station hits their home
- Three hostages, two from Lebanon and one from Nepal, are released.