The shaky week-old cease-fire in southern Iraq broke down completely Wednesday with heavy fighting on the streets of Kufa, where U.S. troops pursued Shiite Muslim insurgents, killed at least seven Iraqis and wounded 37 others.

After calm on the first day of the truce, almost all the conditions of the deal worked out last Thursday have failed to hold. Fighters from the anti-occupation militia of rebel cleric Moqtada Sadr continue to roam the streets of Kufa, about 90 miles south of Baghdad, as well as the nearby city of Najaf instead of disappearing as promised. Talks between Sadr and mainstream Shiite leaders over charges that he was involved in the murder of a moderate cleric last year have yet to get underway. Nor have negotiations begun on disbanding his militia, the Mahdi Army, and converting it into a political organization.

Instead, Iraqi mediators are awaiting Sadr's response to a new request that his forces abandon mosques and police stations and surrender their weapons within 72 hours.

U.S. commanders had responded to Sadr's promises with a pledge to halt offensive operations and pull their forces into a pair of bases near Kufa and Najaf, except for guards at police stations and government offices. U.S. officials also said that they would continue to patrol the two towns to avoid a "security vacuum" and that soldiers would fire on Sadr's fighters in self-defense.

But almost from the outset, there have been numerous shootouts, especially in Kufa. Two U.S. soldiers were killed during the week.

U.S. officials initially attributed the problems to Sadr's fighters not getting word about the truce, and they characterized the fighting as small in scope. On Wednesday, a military spokesman in Baghdad said flatly, "There never was a cease-fire."

Shiite mediators accused the Americans of breaking the truce by attacking two mosques and an industrial area while negotiations for the 72-hour withdrawal were underway. In a letter to the provincial governor in Najaf, Adnan Zurufi, mediators from the Shiite House, a group of politicians that worked out the original deal, wrote: "What is happening now is a violation of the cease-fire agreement and efforts to reach a peaceful solution."

The fighting threatens chances of the two-month-old Shiite rebellion ending before the formal transfer of authority to a new Iraqi government June 30. The new government took shape Tuesday, and administration officials characterized its formation as a turning point in the tumultuous 13-month-long occupation of Iraq.

But tumult continues, and not just in the south. For the third day in a row, a car bomb exploded on a Baghdad street. The explosion in the busy Adhamiyah district killed four bystanders. The blast was aimed at a passing convoy of SUVs of the sort frequently used by Iraqi officials and foreigners working for the U.S.-dominated Coalition Provisional Authority, witnesses said.

The convoy escaped with dents and a few flat tires.

There were two explosions, a smaller one and a deadly blast a few minutes later. "The second explosion happened when young men and children started to gather around. Then people got hurt," said Falah Kadhim, a laborer. At least 13 Iraqis have died in Baghdad car bombings this week.

"It's enough that we've had so many wars in the past," said Taher Kadhim, an appliance store owner. "Now we have the war of the car bombs." His son, who was in the shop, was hit in the eye with glass. Police on the scene said the bomb detonated by remote control.

The kidnapping threat to foreigners has also persisted. A videotape provided to Arabic-language satellite television networks showed two truck drivers -- one Turkish, the other Egyptian -- being held by a group of masked men brandishing rocket-propelled grenade launchers and automatic rifles. One of the abductors read a statement saying that the captives "were providing the American army with supplies and goods." The narrator went on to say they would be treated according to Islamic law and warned "everyone who is assisting the Americans that they will meet the same fate."

The hostages held documents that indicated they worked for ESS, a division of a British company that is providing food to U.S. forces.

On Tuesday, kidnappers seized two employees of a Polish construction company from its Baghdad offices. One of the Poles escaped, but the other remains in captivity. Two Kurdish security guards and two Iraqi workers were also abducted. Kidnappers currently hold at least nine foreigners from a two-month wave of abductions.

Fighting in Kufa began in the morning when U.S. troops advanced into the center of town, where Mahdi Army militiamen were in the process of taking over a police station. Fighting broke out as U.S. armored vehicles approached the city's main Kufa mosque, which Sadr's fighters have used as a fortress.

Militiamen scrambled to battle the Americans and civilians shuttered themselves in their homes and shops. The skirmishes lasted for about an hour. At sunset, more shooting and explosions echoed through Kufa's deserted streets.

A spokesman for Sadr, Fuad Turfi, accused the Americans of "deliberately breaking the cease-fire because it is not in their favor."

Another spokesman, Ahmed Shaibani, said Sadr would speak about the 72-hour peace proposal at Friday prayers in the city.

Williams reported from Baghdad.

A woman collapses after learning that a relative died in a car bombing that killed four in Baghdad. Car bombs have killed at least 13 Iraqis this week.