Iraqi and US troops have launched an operation in the central Iraqi town of Madain, where Sunni rebels are holding a number of Shia residents hostage.
The rebels seized an unknown number of Shia on Friday and said they would kill them unless all Shias left the town.
US and Iraqi forces have taken up positions around Madain, poised to retake the town.
Iraqi officials say this is the latest in a spate of tit-for-tat kidnappings in the Sunni-Shia mixed town.
The BBC's correspondent in Baghdad Jim Muir reports that government commandos are ringing the town and preparing to move in with the Americans in the background.
According to Reuters news agency, hundreds of Iraqi troops, armed with machine guns and rifles have surrounded the town and begun moving in vehicles, while US soldiers have cut off two key bridges leading into the area.
Details of the exact number of Shia hostages remain sketchy, ranging from as high as 150 to three or even none, our correspondent says.
In another incident on Saturday, three American soldiers were killed when a Marine base came under indirect fire near Ramadi, west of the Baghdad, the US military said on Sunday.
Seven service members were hurt in the night attack, three of whom were evacuated for treatment.
The trouble in Madain, about 30km (20 miles) south-east of Baghdad, began on Thursday when Sunni militants damaged an empty Shia mosque by detonating explosives inside, said Haitham Husseini, a spokesman for the Supreme Council of Islamic Revolution (Sciri) - Iraq's largest Shia group.
Mr Husseini told the Associated Press news agency that the rebels returned on Friday to seize the hostages, and called over loudspeakers for Shias to leave.
"There were about 100 masked men, riding in cars, roaming the city. They took hostages from the Shia youth and old men," he said.
"The families contacted us yesterday and they asked for our help. There is a fear now among the women and children."
Iraqi Security Minister Kassim Daoud said US and Iraqi troops were raiding areas where hostages were suspected to be.
The government had earlier acknowledged that Madain was not under its control.
Some Shia residents have already left the town, AFP reported.
Insurgents are increasing the tempo of attacks
"Gunmen have ringed the town," the agency quoted Khodeir Abbas as saying after he fled with 10 members of his family.
Another resident, Abbas Mahmoud, told AFP: "I fled the town fearing they would kill me if I stayed."
A local police official said there had been kidnappings by one group and then the other for weeks.
"There are security problems in Madain with tribal implications. Some people are trying to use it to create sectarian strife," Deputy Prime Minister Barham Saleh said.