Shooting also broke out after a demonstration in the northern city of Mosul, witnesses said, after overnight clashes between Polish and Bulgarian troops and Shia militiamen in the shrine city of Kerbala killed 15 Iraqis, and six Iranian pilgrims were shot dead at a Polish checkpoint, police and doctors said.
The six Iranians were killed on the road between Babel and Kerbala as their car approached a Polish checkpoint, a Kerbala police spokesman said. Five Iranians were killed in a similar incident earlier this week.
The first anniversary of Saddam Hussein's fall marked with Sunni and Shia rebels battling US-led forces and holding three Japanese and other foreign hostages.
Fierce fighting that has convulsed the Sunni cities of Falluja and Ramadi reached the western outskirts of Baghdad, where insurgents killed nine in an attack on a US fuel convoy, and said they had seized four Italians and two Americans.
A Reuters journalist saw two captive foreigners in a mosque in a village in the Abu Ghraib district. One was wounded in the shoulder. Both men were weeping.
At the scene of the convoy attack, a dead foreigner lay on the road with a bloody head as an Iraqi beat him.
Teenage fighters with rocket-propelled grenades and rifles lurked on bridges or in derelict lots near the main highway leading west towards the embattled town of Falluja.
Iraq's US administrator Paul Bremer said US forces had unilaterally suspended operations in Falluja at midday after a crackdown on guerrillas to allow aid in and what would be unprecedented talks with insurgents.
Bremer announced the Falluja cease-fire after five days of street fighting in which up to 300 Iraqis have been reported killed and US Marines have also taken casualties.
Shia militiamen still control the centre of the shrine city of Najaf, where Sadr is thought to be holed up. The violence erupted as Shia pilgrims thronged Kerbala for Arbain, a religious occasion that climaxes this weekend.
Sunnis and Shias prayed together in the southern city of Basra, in one of many shows of solidarity seen across Iraq.
A major international oil conference due to take place in Basra later this month was cancelled due to security fears.
US-led troops retook the eastern town of Kut two days after Ukrainian soldiers withdrew after clashes with Shia militiamen loyal to radical cleric Moqtada al-Sadr, who launched an uprising across southern Iraq this week.
The Marines launched "Operation Iron Resolve" after last week's killing and mutilation of four US security guards. The ferocity of the crackdown has angered Iraqi politicians working with Bremer's administration.
"We are seeing the liquidation of a whole city," Governing Council member Ghazi Ajil al-Yawar told Al Jazeera television, saying he might resign in protest over the treatment of Falluja.
Bremer did not say how long the cease-fire would last, though an Iraqi politician said it would go on for 24 hours.
This week's bloodshed, engulfing the hitherto quiescent Shia south as well as the bastions of Sunni insurgency in central Iraq, has shown how far the United States is from securing the country whose dictator it toppled on April 9, 2003.
Iraqis traumatised by 35 years of Baathist rule then hoped Saddam's removal would bring them freedom and a better life.
Today they face an uncertain future after 12 months of violence that is sapping a reconstruction drive, hampering oil exports to pay for it and frightening off foreign investors.
Since Sunday, at least 41 US and allied soldiers and hundreds of Iraqis have been killed in fighting. Baghdad streets were quiet on Friday as many residents feared more violence.
"America is the big devil and Britain and Blair are the lesser devils," a preacher at Baghdad's Um al-Qura mosque told an angry congregation. Reflecting a growing hostility to outsiders, one worshipper said: "When we get the order for Jihad, no foreigner will be safe in Iraq."
Britain's Foreign Secretary Jack Straw said the situation was the most serious yet faced by US-led occupation forces.
"The lid of the pressure cooker has come off," he told BBC radio. "There is no doubt that the current situation is very serious and it is the most serious that we have faced."
NO JUBILATION THIS YEAR: In Baghdad, new razor wire barriers blocked streets around Firdaws Square where US Marines and Iraqis dragged down Saddam's statue a year ago.
Loudspeaker messages warned the public to stay away. The measures appeared designed to foil possible anniversary protests against the US-led occupation.
Posters of Sadr fluttered on a green sculpture symbolising a new Iraq erected on the plinth where Saddam's statue once stood. A US soldier later climbed a ladder to pull down the Sadr pictures in an eerie echo of last year's iconic images.
A mortar round landed in the vicinity of the nearby Sheraton hotel in the late afternoon, causing a thunderous blast and sending up a plume of smoke. No casualties were reported.
For some US allies, the surge in fighting and kidnapping will fuel debate on the wisdom of keeping their troops in Iraq.
Japanese Prime Minister Junichiro Koizumi, already under fire at home for sending troops to Iraq said he had no plans to withdraw them despite the kidnapping of the Japanese civilians.
A previously unknown Iraqi group released a video of the hostages on Thursday and vowed to "burn them alive" if Japanese troops did not leave Iraq within three days.
In other kidnappings, rebels have seized two Palestinians with Israeli identity cards. A Briton has gone missing and a Najaf-based Canadian aid worker has also been abducted.
The US military reported six more combat deaths in Iraq on Wednesday and Thursday, bringing to 449 the number of US troops killed in action since the start of the war.
Bremer named two Governing Council members to key posts. Samir Sumaidy, a Sunni independent, becomes interior minister, replacing Shia Nouri Badran. Mowaffaq al-Rubaie, a Shia independent, takes on the new role of national security adviser.