Major General Jassem Mohammed Saleh was greeted by cheering crowds as marines departed after three weeks in which hundreds of Iraqis died and fierce fighting contributed to the highest monthly US death toll since last spring's invasion.

Saleh is expected to take over a newly-formed Fallujah Protection Army under a deal announced Thursday by marine commanders on the ground.

As the marines left in tanks and trucks to a base outside of the city, Saleh toured the city's streets Friday and hundreds reached out to touch him in one of the city's Sunni Muslim mosques.

In another apparent attempt to ease tensions, an imam of a Fallujah mosque, Sheikh Jamal Shaker al-Nazzalin, was released after being held for eight months, a Sunni Muslim official told AFP.

Further south, a standoff remained outside the holy city of Najaf, where the firebrand Shiite cleric Moqtada Sadr, who is wanted by the United States over the murder of a rival cleric last year, remains holed up.

During Friday prayers, Sadr heaped scorn on the Americans for their rehabilitation of former military officers and members of Saddam's ruling Baath party and refused to be silenced.

"They are trying to reintegrate the Baathists. It proves the Americans hate the Iraqi people," Sadr told thousands of worshippers at the main mosque in the neighbouring holy city of Kufa.

Hundreds also took to the streets in Najaf to protest against the policy, as the US sought to regain the trust of thousands of alienated Iraqis who lost their jobs merely because they were party members.

"God rid us of those Iraqi leaders and Governing Council members who don't speak out against the new policy," said Sayed Sadreldin Al-Kobangi in his Friday sermon at the Imam Ali shrine and mosque.

Afterwards crowds chanted "No to the return of the Baathists" and "Victory to the faithful and death to the Baathists."

The United States also Friday came under fire over the running of the main jail in Iraq, west of Baghdad, after pictures were shown for the first time of detainees being abused and demeaned by laughing US guards.

Six soldiers have been charged over alleged mistreatment and the top general faces a possible reprimand.

US troops in Fallujah left just hours before the arrival of Saleh, a respected town elder who had been stationed in the northern city of Mosul before US forces toppled Saddam one year ago.

Saleh belongs to the powerful Dulami tribe from the province that includes Fallujah. "We will work together for the sake of Fallujah," said Saleh, dressed in combat fatigues and black beret, during his city tour.

Dozens of returning families lined up at checkpoints were still kept outside of the city Friday by US forces, despite their pullout from their forward base in the south of the city.

The US marines began their attack on the city five days after the March 31 killing of four US contractors in Fallujah in a fiery ambush.

A ceasefire was put in place after five days of fierce fighting and the US repeatedly warned insurgents they had days rather than weeks to hand over their heavy weapons.

However, few were forthcoming amid continued clashes and the US appeared to change tack last weekend and push hard for a political settlement to avoid another attack on the city.

US defense officials, however, said no deal had been completed and US aircraft continued to target insurgent positions overnight as uncertainty remained over how any new system would work.

UN envoy Lakhdar Brahimi warned that if the violence prevents the formation of an Iraqi transitional government by the June handover, a dangerous "vacuum" would be created.

"It may prove difficult to form a government that will take over power on June 30, and this is something dangerous which I don't think (anyone) wants," Brahimi told Al-Jazeera news channel from New York.

The US military toll stands at 731 since the invasion in March last year. Estimates of Iraqi deaths range above 10,000.

Some 120 US soldiers have been killed in April, more than the total for the six weeks of "major combat" that President George W. Bush declared at an end on May 1 last year.

WAR.WIRE