FALLUJAH, Iraq, Oct 15 (AFP) - US and Iraqi troops encircled the rebel city of Fallujah on Friday in the hunt for Abu Mussab al-Zarqawi as locals protested Iraq's most wanted man was not there and a car bomb exploded in Baghdad.
As the noose tightened around Zarqawi's network, believed to be holed up in the restive Sunni bastion, the United States formally designated it a "foreign terrorist organization" and slapped sanctions on the Jordanian-born militant.
The move came one day after twin bombings claimed by Zarqawi ripped through Baghdad's once impenetrable Green Zone, home to the US embassy and Iraqi government, killing at least five people.
Officials have warned of a spike in attacks during the Muslim holy month of Ramadan, which started on Friday.
More than 1,000 US and Iraqi ground troops formed a ring around Fallujah after blistering air strikes overnight that left at least eight people dead.
They "have taken up vehicle checkpoints ... with the purpose of channeling anti-Iraqi forces through these main points of passage, identifying and detaining them," marine spokesman Lieutenant Lyle Gilbert told AFP.
But the advance prompted Sunni Muslim clerics to threaten a holy war on the Americans and charge that marines had arrested a key Fallujah leader involved in negotiations to avert an armed confrontation.
The marines refuted the allegations.
Sheikh Khaled Hamoud was arrested by US troops at a mosque near the city, according to a colleague, Sheikh Abdul Hamid Jadu.
He said that Hamoud had been part of a delegation working on a peace deal with the interim government, which crumbled after Prime Minister Iyad Allawi ordered them to hand over Zarqawi.
Jadu maintained that Zarqawi was not in Fallujah and only "a very small number of foreign fighters" remained in the Sunni Muslim city, west of Baghdad.
The military push followed a threat by Allawi to invade the city unless its people handed over Zarqawi, who has a 25-million-dollar price on his head.
Turning up the heat, Washington named the militant's Tawhid wal Jihad (Unity and Holy War) group a terrorist organization and slapped it with economic sanctions, along with three of its aliases.
Zarqawi's network, which is allegedly linked to Osama bin Laden's Al-Qaeda network, is accused of some of the deadliest car bombings and a string of kidnappings and beheadings in Iraq.
A suicide car bomb targeted a police patrol in a southern Baghdad suburb earlier in the morning, killing at least one Iraqi civilian and wounding 15 others, mostly policemen, local hospitals said.
The attack sent chills down the spine of locals worried for their safety during the sacred holiday of Ramadan after Zarqawi's group on Thursday claimed the deadliest attack ever in the once impenetrable Green Zone.
A pair of bombers struck in a bustling restaurant and bazaar in the citadel-like area, killing at least five people, including three US private security contractors, while another US citizen was presumed dead.
Adding to the foreign civilian death toll, British security firm ArmorGroup said one of its employees was shot dead on Monday near to the northen Iraqi oil centre of Kirkuk.
Foreign companies are a prize target in a surge of violence that has shaken Iraq since last year's US-led invasion.
Meanwhile, the government said a five-day initiative for militants loyal to Shiite cleric Moqtada Sadr in the Baghdad Shiite slum of Sadr city to hand over their weapons for cash had been extended by 48-hours.
"It's been extended two days with no conditions," Iraqi National Security Advisor Kassem Daoud told AFP. "We're looking for heavy weapons."
Daoud added that similar programmes would soon begin across the country as the government sought to get weapons off the street in a nation saturated with small arms.
As the country moved forward to planned national elections in January, Iraqi President Ghazi al-Yawar said in an interview published in Cairo that the poll could be delayed if the security situation had not sufficiently improved.
In Warsaw, Poland's Prime Minister Marek Belka confirmed that the 2,500 Polish troops in Iraq would be progressively withdrawn starting from January next year and would not stay "an hour longer than needed".
Separately, Britain's Channel Four television reported that the United States wants Britain to deploy troops in more volatile parts of Iraq.