The marines insisted they would patrol the insurgent bastion side by side with a newly formed Fallujah Brigade and vowed to bring to justice the killers of four US contractors brutally massacred on the town's main street late last month.

The head of US Central Command, General John Abizaid, cautioned the plan might not immediately end the violence that had left hundreds of Iraqis and scores of marines dead.

In a reminder the path ahead was treacherous, a suicide car bomber killed two marines and wounded six others not far from the main US base outside Fallujah Friday morning.

As marines rolled out of the town in tanks and trucks, Major General Jassem Mohammed Salah was met by a cheering and flag-waving crowd.

Saleh, tapped by the Americans to head a new security force in Fallujah, toured its war-torn streets, which in the past three weeks have witnessed the worst fighting in Iraq since the US-led invasion in March last year.

"We will work together for the sake of Fallujah," said Salah, dressed in his combat fatigues and a black beret, as 400 people reached out to touch him in the town's Hadra al-Mohammadiyah mosque.

Locals described Salah as a respected town elder who had been stationed in the main northern city of Mosul before the coalition toppled Saddam a year ago.

The 1st Battalion, 5th Marines Regiment, accompanied by tanks left frontline bases in abandoned factories and garages in Fallujah's southern industrial zone, taking down barbed wire and berms.

The area was the furthest the marines had penetrated into the city, with the rest of their troops positioned on its outskirts. A gradual withdrawal is expected from other areas around the city.

Salah showed up in town with 200 followers before heading into closed door talks with the commander of the 1st Marine Expeditionary Force, General James Conway, at Camp Fallujah, a few kilometres (a couple of miles) outside town.

"They look like they are ready to do business," Conway's chief of staff, Colonel John C. Coleman, told reporters after the talks.

Coleman also confirmed that a first 600- to 1,000-strong battalion of the newly created Fallujah Brigade had taken over marine positions in the city.

"We had a transition of forces, as their forces came in line they supplanted ours," Coleman said.

He said he was optimistic about the end of the siege.

"Day by day they'll judge us and we'll judge them... We're working ourselves out of a job."

The marines said they would stay inside the city until the battalion, which is mainly locally recruited, was judged capable of standing alone.

"Coalition forces will maintain the right of freedom of movement in all areas of the AOR (area of operation)," they said in a statement.

The marines warned they would not budge on their demands that the city be cleared of insurgents, the pretext for their April 5th assault.

The marines' "objectives remain unchanged to eliminate armed groups, to collect and ... control all heavy weapons and turn over foreign fighters and disarm anti-Iraqi insurgents," the statement said.

When the Fallujah Brigade's 1st Battalion has restored calm, it will work alongside police in "identifying the murderers and mutilators of the four American contractors on March 31 and the criminals responsible for the February 14 attack on the Fallujah police station," it said.

The second reference was to a combined attack by dozens of insurgents on Iraqi police and paramilitary bases in the town that claimed dozens of lives and resulted in the escape of at least 70 prisoners.

The statement also said marines would allow the return of 200 families a day to the city when the situation had stabilised.

The pullback follows a three-week push for a political settlement.

Abizaid told Pentagon reporters in a video teleconference from Qatar that the new Fallujah Brigade would "be mentored and work next to coalition forces."

But he downplayed expectations.

"I think we must be very careful in thinking that this effort to build an Iraqi capacity will necessarily calm down the situation in Fallujah tonight or over the next several days," he warned.

WAR.WIRE