Militia fighters in the Baghdad slum of Sadr City are to begin surrendering their mortars, grenades, machine guns and other weapons Monday under an accord with the interim Iraqi government, both sides announced Saturday.

The plan, if it goes forward as mutually agreed by community leaders, Iraqi officials, U.S. commanders and militia leaders, would bring peace to an east Baghdad district that, for weeks, has been a battleground for armored U.S. forces and the mostly poor, young men who make up the Mahdi Army, a militia loyal to the Shiite Muslim cleric Moqtada Sadr.

Calm in Sadr City, home to perhaps 2 million people, would significantly boost the prospects for promised January elections, which have been called into question by violence and insecurity in much of the country.

Sadr's militia, which has fought U.S. forces since April, has been the only significant insurgent force from among Iraq's Shiites, who make up a majority of the population and would stand to gain the most from free elections after 30 years of disenfranchisement under Baath Party governments dominated by Sunni Muslims.

"The main point in the agreement is to surrender our weapons, the heavy and medium weapons, which we will open special centers for," said Abdul Hadi Daraji, a Sadr aide.

Mahdi Army fighters -- many of whom sold household appliances and furnishings to buy weapons -- will receive a cash payment for each weapon delivered. Iraq's interim government has also promised to bring hundreds of millions in reconstruction money into Sadr City, where wet garbage and open sewers clog streets and unemployment exceeds 50 percent.

The peace initiative began to take shape last month when Prime Minister Ayad Allawi met with several hundred Sadr City tribal leaders, bidding them to choose development over continued war.

"The objective of this game is to bring these things together so we can have a political process that matters to people," said a Western diplomat in Baghdad who spoke on condition of anonymity in deference to the interim government, which formulated the initiative in cooperation with the U.S. military and the embassy. "We want people to deal with the political process rather than feel they have to pick up a gun."

The plan applies only to Sadr City, stopping well short of the total demobilization of the Mahdi Army that the government has repeatedly demanded. It also follows peace bargains that have been broken by Sadr's forces.

But after weeks of almost nightly bombing raids and relentless pressure by the U.S. armor that killed hundreds of Sadr's militiamen in the southern city of Najaf two months ago, officials calculated that Sadr's camp might finally be ready to renounce armed struggle in its base. Sadr's personal approval of the initiative was announced by an aide Thursday night.

"Obviously, the implications here are bigger than just one city," said Lt. Col. James Hutton of the Army's 1st Cavalry Division. "Moqtada's people are in more than just Baghdad."

In early April and again in August, militiamen took control of several cities in Iraq's south. But the engine of the Mahdi Army has always been the Baghdad slum named for Sadr's late father, a revered grand ayatollah whose memory is frequently invoked by his son.

American forces will remain in Sadr City, U.S. officials emphasized. But as in Najaf and Samarra, a north-central city reclaimed from insurgents last week, Iraqi security forces will take the lead in establishing authority.

Meanwhile, negotiations continued on a plan to restore governmental authority in Fallujah, a Sunni Muslim city 35 miles west of Baghdad that has been in the hands of Iraqi insurgents and foreign fighters since April.

A delegation from Fallujah met with government officials on Saturday in an attempt to cement a deal that would allow Iraqi National Guard troops into the city of 200,000 in exchange for an end to weeks of daily U.S. airstrikes.

In Garma, a town just northeast of Fallujah, a bearded man in a car rigged with a bomb sped into a convoy of U.S. military Humvees as dusk approached on Saturday.

"There was a Brazilian Passat parked in the street close to the police station, and its owner was standing near the car drinking Pepsi, which he bought from the nearby shop," said Hamoud Gawwan Jumaili, a welder. "He stayed four hours waiting. When he saw the convoy arrive, he went immediately to his car and drove at a crazy speed toward them."

An Iraqi police official said two officers were killed. There was no immediate report of U.S. casualties.

Special correspondent Bassam Sebti contributed to this report.

An American soldier gives a drink of water to an Iraqi detained in Sadr City, which has been a battleground for U.S. troops and a Shiite militia for weeks.