The Iraqi government will give Shi'ite militiamen five days to hand in weapons under a weekend peace agreement, a National Security Adviser has said.
He said the Iraqi interim government would commit more than $500 million to rebuilding Sadr City, a dilapidated slum which has been damaged in battles with US troops.
The Mehdi Army militia led by Shi'ite cleric Moqtada al-Sadr yesterday agreed to hand over weapons to Iraqi police from tomorrow under a deal that could end fighting in the district.
The government said the Sadr City accord was a good chance for "all misled armed groups in Iraq to rejoin civil society".
Sadr's militia has staged two uprisings against US and Iraqi forces this year.
A Sunni insurgency still rages on. Sadr City has seen nightly clashes with US forces, while US air strikes have attacked suspected Zarqawi targets in Falluja.
Civilians have been among the casualties. Karim al-Bakhati, negotiating for people in Sadr City, said US forces had promised to halt attacks on the Shi'ite slum.