Iraq's interim government and renegade Shia militias were on Friday looking for a way out of the siege of the Imam Ali shrine without a further escalation of violence in one of the country's holiest sites.

As each side sought to emerge with the advantage, a day of rumour and counter-rumour stoked the hostility between the government of Iyad Allawi, interim prime minister, and Moqtada al-Sadr, the Iraqi cleric.