Iraq's most wanted man Abu Musab Al-Zarqawi, believed to have used Fallujah as an operating base, called for insurgents inside to fight on, according to an audiotape posted on a website and attributed to him.
Away from the chaos, President George W. Bush said in Washington that US-led forces had made "substantial progress" towards securing Fallujah, and joined British Prime Minister Tony Blair in vowing that Iraq will be democratic.
In a sinister reminder of how Fallujah earned its reputation as a rebel enclave, marines said they found alive a Syrian driver who had been taken hostage with two French journalists as well as an underground prison.
They also blew up what they dubbed a hostage "slaughterhouse" where they said militants had filmed foreign and Iraqi victims begging for their lives or having their heads chopped off.
Despite the military successes, commanders expressed fear that many insurgents had fled Fallujah before the battle began on Monday and were operating in other Sunni Arab flashpoints such as Iraq's northern hub of Mosul.
US tanks pushed Friday through southern Fallujah, while thousands of US troops, backed by Iraqi soldiers, moved house to house to root out insurgents.
"There is much cleaning to be done, although we occupy 80 percent of the city as we speak," Lieutenant General John Sattler told a press conference at the main US military base outside the city.
Iraqi troops have so-far detained 151 foreign fighters, including 15 on Friday, among whom was a French-speaking man whose nationality was unknown, Prime Minister Iyad Allawi's spokesman said at the joint briefing.
A relentless barrage of US firepower over the past week has turned Fallujah into a ghost city, said an AFP reporter embedded with the marines in the north.
Building-to-building searches uncovered Mohammed al-Jundi, the Syrian driver who was taken hostage with French journalists Christian Chesnot and Georges Malbrunot seized by militants south of Baghdad on August 20.
There was no news on the fate of the French journalists.
An intelligence officer, who refused to be identified, told AFP, that US marines uncovered an underground prison containing at least two bodies and two emaciated brothers who were still alive. While another marine unit blew up one of the houses on Thursday where foreign and Iraqi hostages appeared to have been slaughtered.
More than 200 foreigners have been kidnapped in Iraq since April by different militant groups and many have been beheaded.
Victory in Fallujah looked set to come at a heavy price, with the rising death toll, and also appeared unlikely to crush an insurgency that has plagued Iraq since last year's invasion, threatening elections promised for January.
In the face of the onslaught, some insurgents shifted elsewhere, with attacks across the Sunni belt prompting curfews on seven cities.
An AFP reporter said truck loads of gunmen have entered Mosul, 370 kilometres (230 miles) north of Baghdad, and were roaming the streets.
"We want to open a new front to alleviate the pressure on Fallujah," one of the rebels told AFP, declining to give his name.
But Lieutenant Colonel Paul Hastings, the US military spokesman in the city, insisted that the situation was under control.
The military unleashed ground and air strikes on Mosul on Thursday.
Amid the unrest, Muwaffak Mohammed Dahlam, the head of Mosul's anti-criminal division, was shot dead on Friday along with two guards by armed men who torched his home, police Colonel Ali Jbouri said.
In snapshots of other violence, three crew were injured when a Black Hawk helicopter was shot down north-east of Baghdad, at least five Iraqis were killed in clashes in Hawijah and a US soldier was shot dead in the capital.
In addition, a local leader was ambushed in the restive province of Al-Anbar, home to battle-torn Fallujah.
On Friday, relatives of Iraq's hawkish US-backed premier, Iyad Allawi, who were kidnapped earlier in the week were still missing.
In a sign of worse to come, Zarqawi, blamed for the some of the worst attacks and kidnappings in Iraq, urged the militants in Fallujah to stand firm, according to an audiotape purportedly from him.
"O heroes of Islam in Fallujah: blessed be your holy war ... wait another hour and you will harvest results, God willing," said the voice. "You are the avant garde of the nation, do not be miserly (in sacrificing) your lives for your religion."
Painting a more optimistic picture of Iraq from the ornate East Room of the White House, Bush and Blair insisted that while attacks would likely escalate in the run up to elections, the country had a bright future.
"Iraq can be that democratic, stable state that the vast majority of Iraqis I know will want to see," said Blair, who was making his first US visit since Bush won a second four-year term in the November 2 US election.