Battle rages in Falluja

US and Iraqi troops battled through much of Falluja yesterday and said they had scattered rebel forces, although fighting was still intense.

Islamist kidnappers threatened to behead three relatives of Iraq's interim prime minister if he did not call off the offensive but the government said it would hold firm. Militants also appeared to be holding up to 20 Iraqi soldiers in the city.

As US and Iraqi troops took over more of Falluja, the head of Iraqi forces there said they had found "slaughterhouses" where other hostages had been held and killed in the past, along with records of victims and hundreds of CDs.

But Major-General Abdul-Qader Jassim did not say if any remains had been found or if there was any clue to the fate of at least nine foreign hostages still missing.

Yet more captives appeared to have been taken when rebels released a video tape showing what they said were 20 Iraqi National Guard troops seized in Falluja.

Air strikes, shelling and mortar fire shook Falluja during intense clashes interspersed with periods of relative calm, a Reuters reporter in the Sunni Muslim city said. US forces said they bombed a mosque after coming under fire from within.

The military said US and Iraqi troops had "fought their way through half of the city, including the Jolan District, suspected of being the epicentre of insurgent activity".

The US Marine commander at Falluja, Lieutenant-General John Sattler, told reporters his opponents had been reduced to small groups, unable to coordinate their movements: "They are now in small pockets, blind, moving throughout the city.

"We will continue to hunt them down and destroy them."

Prime Minister Iyad Allawi's 75-year-old cousin Ghazi Allawi, the cousin's wife and their daughter-in-law were seized near their home in Baghdad on Tuesday, Mr Allawi's spokesman said. The previously unknown Ansar al-Jihad group said the hostages would die unless Mr Allawi, "head of the Iraqi agents", halted the US-led Falluja offensive and freed prisoners.

"If the agent government does not meet our demands within 48 hours we will behead them," it said in a statement dated yesterday and posted on an Islamist website.

Mr Allawi's office said in a statement policy would not change: "This is yet another criminal act by terrorists and will not thwart the determination of the government to combat terrorism."

The three were seized a day after Mr Allawi ordered the full-scale assault by US and Iraqi forces to rid Falluja of rebels and suspected foreign Islamist fighters to pave the way for nationwide elections planned for January.

Mr Allawi and his US-backers say al Qaeda ally Abu Musab al-Zarqawi and other rebels had turned Falluja into the epicentre of insurgency, from where bombings, killings and kidnappings aimed at forcing out foreigners were directed.

"We have found hostage slaughterhouses in Falluja that were used by these people and the black clothing that they used to wear to identify themselves," General Jassim told reporters.

He did not link the finds to Zarqawi, whose group has claimed several hostage beheadings.

Nor could he say if the records listed any of at least nine foreign hostages still missing: "I did not look at that closely."

Among the missing are British-Iraqi aid worker Margaret Hassan, Polish-Iraqi woman Teresa Borcz Khalifa, French journalists Georges Malbrunot and Christian Chesnot and two Americans.

Apparently losing ground in Falluja, rebels staged several attacks across Iraq, some striking in their boldness.

At least nine civilians were killed and 24 wounded in fighting in Baiji, 180 kilometres north of Baghdad and there were running battles in the city of Mosul and parts of Baghdad.

Gunmen stopped traffic and blocked a bridge in the west of the capital, where a 48-hour closure of Baghdad International Airport was extended by another day.

Seven people were killed in a bombing in Baghdad. Two roadside bombs just to the north killed six Iraqi national guards and, separately, a US soldier. A policeman was killed and two wounded in a similar attack near Samarra.

A Turkish truck driver was killed by gunmen near Baiji. The US military said 11 American troops and two Iraqis had been killed at Falluja since 10,000 US soldiers and Marines and 2,000 Iraqi troops launched the offensive on Monday night.

It said the city's mayor's office had been captured at about 4 a.m. (0100 GMT). Key bridges, civic buildings, mosques and weapons caches had also been seized.