NAJAF, Iraq -- Gunmen assassinated an Iranian diplomat in Baghdad on Thursday just as Iran, with tacit U.S. approval, attempted to mediate with a radical Shiite cleric defying American forces in this southern Iraqi city.

Diplomat Khalil Naimi was shot in the head by unknown assailants while he drove near his embassy in the center of the capital. The slaying cast a shadow over Thursday's unusual negotiating mission by the envoy from neighboring Iran, which fought an eight-year war with Iraq in the 1980s and does not have diplomatic relations with Washington.

Iranian Embassy officials were investigating whether there was a link between the assassination and the envoy's visit. Naimi was not a member of the Iranian negotiating team.

State Department spokesman Richard Boucher said "it's probably premature to draw any conclusions about whether it reflects anything about the role that Iran has played one way or the other in Iraq."

The Iranian effort to mediate with anti-American cleric Muqtada al-Sadr was arranged by Britain but it had the tacit approval of the United States, according to a State Department official, speaking on condition of anonymity.

The U.S. nod reflected the eagerness to find a solution that would avert a U.S. assault on Najaf -- the holiest Shiite city -- aimed at capturing al-Sadr.

But it was not clear whether al-Sadr would agree to meet with Iranian envoy Hossein Sadeghi. Al-Sadr was accepting mediation only by an Iraqi political party picked by Iraq's top clerics, according to his aide Sheik Qays al-Khaz'ali.

Shiite Governing Council member Ibrahim al-Jaafari said he saw "flexibility from al-Sadr's side" and called on the Americans to show "similar flexibility."

Iraq's top U.S. administrator, L. Paul Bremer, was involved in "multiple channels" to try to negotiate an end to the standoff in the south and in the central city of Fallujah, said Gen. Richard B. Myers, chairman of the Joint Chiefs of Staff.

Myers warned there is a limit to how long the Marines can put off a resumption of offensive operations in Fallujah. "At some point somebody has to make a decision on what we're going to do, and we certainly can't rule out the use of force there again," he told a news conference.

In one of the few signs of possible progress in negotiations, being held between Iraqi politicians and city representatives, mosques in Fallujah on Thursday announced that police and Iraqi Civil Defense Corps members should report to their stations on Friday, residents said.

It was not known, however, how many would do so. Many members of the city's security forces have left the city during the past 11 days' battles.

After relative peace during the day, gunfire and explosions resumed after sundown Thursday -- as they have nightly as Sunni insurgents and Marines exchange fire over relatively fixed positions.

Marines were broadcasting messages by loudspeaker in the city to agitate insurgents, announcing "You are cowards for hiding behind women and children. Come out and fight," and blaring heavy metal music, including AC/DC's "Shoot to Thrill," said Marine Lt. Col. Brennan Byrne.

On Thursday, Marines fired a TOW missile at a mosque minaret being used as an observation post by insurgents, and the blast knocked off part of the top of the minaret, Marines said. It was not clear if anyone was killed in the blast.

The minaret belonged to the al-Hadra mosque, part of which is being used as an emergency medical center by the Red Crescent. The mosque has been the site of the negotiations aimed at easing the violence.

Marines and insurgents have used minarets and other high places in the city for sniping and observation posts, witnesses have said.

The Marines discovered weapons caches that suggested the sheer variety of the arsenal held by the up to 2,000 insurgents that U.S. commanders believe are in Fallujah. Among the caches were surface-to-air missiles, anti-tank mines and even a U.S. TOW anti-tank missile and Pepsi bottles stuffed with explosives.

Earlier in the week, Marines moved against insurgents in Karma, a village neighboring Fallujah, in a battle that U.S. forces said killed 100 insurgents. The fighting in palm groves and over canals Monday and Tuesday was so intense that wounded Marines were sent out to fight.

"They ran in there with bandages and all," said Col. B.P. McCoy, commander of the 3rd Battalion.

A soldier was killed Wednesday in the central city of Samarra -- raising to 88 the number of U.S. soldiers killed in April, the deadliest month so far for the Americans in Iraq. More than 1,000 Iraqis have also been killed, the most since the fall of Saddam Hussein.

The U.S. condoning of Sadeghi's mission reflected the complex relationship Tehran and Washington have had over Iraq. The United States and Iran are bitter enemies, and U.S. officials frequently accuse Iran of allowing militants to cross from its territory into Iraq.

But Iran has enormous influence in mostly Shiite southern Iraq and shares Washington's interest in keeping it peaceful. The U.S.-led political process, which could be derailed by any large outbreak of violence, will likely end with a Shiite-led government friendly to Tehran.

Iran has endorsed the U.S.-picked Governing Council -- which has some close Iranian allies among its members -- and has not tried to stir up Iraqi Shiites against the U.S.-led occupation.

Tehran and Washington have been holding behind-the-scenes communication on how to restore order in Iraq, Iran's Foreign Minister Kamal Kharrazi said Wednesday, though he said they have been "going nowhere."

Both countries also want to avoid a U.S. attack on Najaf, site of the holiest Shiite site -- the Imam Ali Shrine, only yards away from the office where al-Sadr is located, surrounded by armed gunmen.

Al-Sadr's al-Mahdi Army militia launched a bloody uprising last week across the south and in Baghdad, battling U.S. coalition troops and taking control of a number of cities. The United States branded him an outlaw and accused him of fomenting mob violence.

Some 2,500 U.S. troops have deployed on the edge of Najaf, vowing to "kill or capture" him, but for three days they have remained on the outskirts, hunting in palm groves for al-Sadr militiamen but not moving into the city while negotiations continue.

Maj. Neal O'Brien, however, said the units at Najaf "will not complete this operation" and will likely be replaced by other troops -- suggesting the force will not launch an assault on Najaf any time soon.

Al-Sadr on Monday withdrew his militiamen from police stations they had occupied in Najaf, Kufa and Karbala last week -- meeting a key U.S. demand -- and dropped all preconditions for holding negotiations, at the request of Grand Ayatollah Ali al-Husseini al-Sistani, Iraq's most prominent Shiite cleric.

Negotiations now appeared focused on dissolving the al-Mahdi Army -- a demand al-Sadr has refused -- and how to deal with al-Sadr himself. U.S. officials want him put to trial on charges he was involved in the assassination last year of a rival Shiite cleric.

Asked if al-Sadr had agreed to dissolve his militia, his aide al-Khaz'ali said "the negotiations have not produced results yet." But he added: "God willing, it will be fine."

Meanwhile, kidnappers freed three Japanese hostages whom they had threatened to kill unless Japan withdraws its troops from Iraq. An Italian hostage was killed by gunmen who threatened to kill three other Italian captives. At least 19 foreigners remained unaccounted for following a wave of abductions.

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Associated Press reporters Jason Keyser, Lourdes Navarro and Abdul Qader Saadi in Fallujah contributed to this report.