NAJAF, Iraq, Aug 28 (AFP) - Shiite militia leader Moqtada al-Sadr ceded control of his shrine stronghold Friday to representatives of the religious leadership following a deal with Grand Ayatollah Ali al-Sistani to end weeks of deadly fighting that has devastated Najaf.
But fighters of his Mehdi Army refused to surrender their weapons to Iraqi authorities, defying one of three conditions laid down by the caretaker government for halting its US-backed assault on the militia.
The handover of the Imam Ali mausoleum was concluded a week after Sadr aides first promised but failed to surrender the keys to the shrine, triggering further US air raids that pummelled the pilgrimage city into rubble.
"Moqtada al-Sadr has officially handed over control of the shrine," Sheikh Hassan al-Husseini, one of 12 delegates from Sistani's office said at the complex, four months after the fighters took it over.
A document formally attesting to the handover was signed by Sadr spokesman Sheikh Ahmed Shaibani and the head of Sistani's Beirut office, Ahmed Khaffaf, before everyone left the compound and the key was given to Khaffaf.
Late Thursday, Sadr had agreed to demands spelt out by Sistani -- that all armed elements disarm and leave Najaf and its twin city Kufa, alongside the withdrawal of US troops and the deployment of Iraqi police.
Except for two American tanks on the edge of the Old City, the US military had evacuated the neighbourhood by Friday afternoon.
Sistani, who returned to Iraq a rapturous welcome after undergoing medical treatment in London, was granted a 24-hour ceasefire by Baghdad and the US military to negotiate an end to the the standoff.
But on the streets of Najaf, devastated by the 22 days of combat, pitting US and Iraqi troops against the Mehdi Army, militiamen defiantly refused to give up their weapons to police or the military.
Instead, fighters carried home Kalashnikovs rifles in plastic bags, while others wrapped mortar and rocket-propelled grenade launchers in canvas before stashing them in safe houses in the Old City.
"They will hide their weapons but will not hand them over to the police or to the army," Shaibani told AFP.
"The Americans thought that they could exterminate the Mehdi Army, but our fighters are still here. They will be able to go back to their work whilst remaining an army."
After a deal in June that ended Sadr's first uprising against US-led troops, militiamen also hid their weapons. Fighting broke out again two months later.
The Najaf peace deal followed a deadly day in Kufa, where a double mortar attack and shooting at a demonstration left 74 people dead and more than 350 wounded.
Sistani's office in Najaf has called for an immediate investigation into the shooting of supporters trying to get into the holy city.
Prime Minister Iyad Allawi has repeatedly urged the Mehdi Army to take advantage of a 30-day amnesty to lay down its weapons and escape prosecution. He has also promised a "safe passage" for Sadr if he disarms and quits the shrine.
A senior government official repeated there was no place in Iraq for militias with hoards of weapons hidden away from prying eyes, leaving open the question of how long the truce would hold.
"They have to give up their weapons... We have to rid this country of militias. But I really do think it's too early to comment. This is a promising start," the official told AFP.
However the discovery of at least 25 decomposing bodies in the basement of Sadr's religious court sparked accusations from police commanders that the cleric's militia had launched a reign of terror during its occupation of the shrine.
"Some were executed, others were mutilated and others were burned," charged the deputy head of the Najaf police, General Amer Hamza al-Daami.
However Sadr's office insisted that the bodies had been been taken to the basement earlier in the day as militiamen took advantage of the lull in the fighting to clear the front line of those who had fallen in battle.
That version of events was at least partially corroborated by two AFP photographers who saw Sadr fighters clearing corpses from buildings around Tusi and Sadeq Streets and carrying them off in the direction of the court building.
In Baghdad, 12 US soldiers were wounded in multiple grenade attacks in the centre of the capital, the US military said.
Al-Jazeera television meanwhile quoted Iraqi police as saying the bodies of two Turkish hostages shot dead have been found in Baiji in northern Iraq.
"Al-Jazeera learned from sources in the Iraqi police that the bodies of two Turkish hostages executed by gunfire were found on the main road near the Al-Sharkat area in the town of Baiji," a key oil refinery town in the Sunni Muslim belt that stretches north and west from the Iraqi capital.
And a group calling itself the "Islamic Tawheed (Unification) Group" said on an Islamist website it would use force to stop Turkey sending "military equipment and assistance to the invading forces" via its border with Iraq.
The reported execution of the two Turks came just a day after the killing of kidnapped Italian journalist Enzo Baldoni.