Iraq's interim prime minister, Ayad Allawi, made a surprise visit to the battle-scarred holy city of Najaf on Sunday and threatened to forcibly remove armed fighters if they did not leave voluntarily, taking a defiant stand against Shiite Muslim cleric Moqtada Sadr.

Allawi did not mention Sadr or his fighters, the Mahdi Army, but said he would not negotiate with any militia members. The Mahdi Army has battled U.S. and Iraqi forces intensely over four days.

"We hope this thing ends as soon as possible," Allawi said. "The gunmen should leave the city and holy shrine quickly, lay down their weapons and return to the rule of order and law, and if not, they will be out by force."

Later Sunday, Iraq's chief investigating judge announced that arrest warrants had been issued for Ahmed Chalabi, an Iraqi exile leader and a former member of the now-defunct Governing Council, on counterfeiting charges, and for his nephew, Salem Chalabi, on murder charges, the Associated Press reported.

Chalabi had long been a favorite of many in the Pentagon but fell out with the Americans before the U.S. occupation formally ended in June. Earlier this year, U.S. officials accused him of revealing U.S. secrets to Iran, and in May, Iraqi police backed by U.S. soldiers raided his home and the offices of his organization, the Iraqi National Congress. At one time, the group received $335,000 a month from the Pentagon for help in gathering prewar intelligence on Iraq.

The warrants, issued Saturday by Judge Zuhair Maliky, accused Ahmed Chalabi of counterfeiting old Iraqi dinars, which were removed from circulation last year. Salem Chalabi, currently the head of the tribunal trying former president Saddam Hussein, is named as a suspect in the murder of a Finance Ministry official about three months ago, the Associated Press reported.

Both men denied the charges, dismissing them as part of a political conspiracy against them and their family. Ahmed Chalabi is currently in Iran, and Salem Chalabi reportedly is in London.

"The charges that I have been involved in counterfeiting Iraqi currency are false and outrageous," Ahmed Chalabi said in a statement. "I can easily prove that these charges are untrue and I intend to defend myself and clear my name."

The interim government also announced Sunday that it would reinstate the death penalty, which had been banned under the U.S.-led occupation, as part of an effort to quell the insurgency.

"Today is the most difficult day in my career because I am supposed to care for and guard human life," said Bakhtyar Amin, Iraq's human rights minister. "But the deteriorating security situation, the widespread armed attacks on civilian workers and foreign workers, and the increasing cross-border drug trade" forced the government to act, Amin said.

The death penalty would apply only in cases of murder, rape, armed attacks against police and government authorities, and trafficking in weapons and drugs, officials said.

Meanwhile, a group calling itself the Islamic Army in Iraq issued a videotape asserting that it had kidnapped an Iranian diplomat and showing a passport and business card that identified him as Fereidoun Jahani. The Iranian Embassy confirmed that Jahani had disappeared Wednesday while traveling from Baghdad to Karbala, another Shiite holy city.

The group issued a statement accusing Iranian officials at the consulate in Karbala of inciting strife between Iraq's majority Shiite Muslims and Sunnis loyal to Hussein.

Allawi's declaration in Najaf angered Sadr's top associates and escalated the war of rhetoric. Allawi has previously blamed criminal gangs, not Sadr and his militia, for the fighting, which broke out Thursday in the city and quickly spread to the southern cities of Amarah, Nasiriyah and Basra, and to Sadr City, a large Shiite slum in Baghdad.

"It's very strange that Allawi asks the Mahdi Army to leave the city," said Ahmed Shaibani, Sadr's spokesman in Najaf. "How can people leave their city? They are Iraqis, not foreigners. We wish to negotiate. Allawi has to know that the Sadr trend has a big popular base in Iraq. He is making a big mistake by refusing to negotiate."

A spokesman for Sadr in Baghdad, Hazem Aaraji, said the fighters would not back down.

"Today Allawi came to give orders to his army to destroy the Sadr trend without knowing that the Mahdi Army fighters are ready for martyrdom," Aaraji told the al-Arabiya satellite network. "The Iraqi forces started the blood pool. The Mahdi Army are defenders, not attackers."

Iraqi religious and political leaders have called for negotiations to end the clashes.

Mohsen Abdul Hamid, a Sunni scholar who leads the Iraqi Islamic Party and was a member of the Governing Council, said Sadr "should handle the situation wisely and withdraw and go back to the negotiations."

Hamid said he was ready "to help in solving the problem," echoing a sentiment expressed on Saturday by Shiite political party leaders.

An official at Hakim Hospital in Najaf said 36 civilians were killed and 143 wounded during the past four days.

The fighting is the worst in Iraq since Sadr staged an uprising in April and May. An uneasy truce brokered in June to end that fighting fell apart Thursday. The Mahdi Army blames Iraqi and U.S. security forces for violating the truce, while U.S. and Iraqi forces blame the militiamen.

The heaviest fighting came on Thursday and Friday, when the U.S. military reported that more than 300 fighters were killed in battles with U.S. Marines and Iraqi security forces. Shaibani, the Sadr spokesman in Najaf, said 15 Mahdi Army fighters were killed and 35 wounded.

Fighting continued Sunday in Najaf and in Sadr City. The Iraqi Health Ministry reported Sunday that 40 people had been killed in the day's clashes.

Iraqi security forces and U.S. Marines withdrew from Najaf on Sunday, pulling out in a snake of green military vehicles. But U.S. forces continued to fight the militants from the air, using helicopters to fire on Mahdi Army encampments.

Mortar rounds hit the municipal building where Allawi and his interior and defense ministers were meeting with the governor of Najaf. Witnesses said that an unknown number of civilians were injured in the attack but that Allawi escaped unharmed.

[A U.S. Marine was killed in action Sunday in western Iraq, the Reuters news agency reported. In a statement Monday, the U.S. military said the Marine was killed in Anbar province, which includes the volatile cities of Falluja and Ramadi, but gave no details.]

The Mahdi Army set up illegal checkpoints in Sadr City on Saturday, preventing people from entering or leaving the area, and few residents wandered outside Sunday.

A U.S. Army helicopter made an emergency landing just north of the neighborhood on Sunday, the U.S. military said. Two pilots escaped uninjured.

Jubilant gun-toting men tore off pieces of the helicopter and attached pieces of the ragged metal to the butts of their rifles. They danced in the streets, shouting and showing off their souvenirs.

U.S. Maj. Gen. Peter W. Chiarelli, commander of the 1st Calvary Division, which is responsible for security in Sadr City, said the Iraqi fighters had not gained full control of the large Shiite slum during the clashes.

"We have seen nowhere near the violence of April," Chiarelli said, referring to the Sadr-led uprising in which hundreds were killed.

Special correspondents Saad Sarhan in Najaf and Bassam Sebti and Omar Fekeiki in Baghdad contributed to this report.

Members of the Mahdi Army, a militia loyal to Shiite cleric Moqtada Sadr, walk in Najaf, where Iraq's prime minister made a surprise visit after days of intense fighting. A Shiite militiaman in Najaf takes aim at a U.S. Apache helicopter. U.S. forces withdrew from city streets but continued to fight the militia from the air.Militiamen in Baghdad's Sadr City slum hold up a rotor from a U.S. helicopter that made an emergency landing. In a separate incident in Anbar province west of Baghdad, one Marine was killed, the U.S. military said in a statement.