The Mahdi Army's seven-month-long cease-fire appears to have come undone.

Rockets fired from the capital's Shiite district of Sadr City slammed into the Green Zone Tuesday, the second time in three days, and firefights erupted around Baghdad pitting government and US forces against the militia allied to the influential Shiite cleric Moqtada al-Sadr.

At the same time, the oil-export city of Basra became a battleground Tuesday as Iraqi forces, backed by US air power, launched a major crackdown on the Mahdi Army elements. British and US forces were guarding the border with Iran to intercept incoming weapons or fighters, according to a senior security official in Basra.

The US blames the latest attacks on rogue Mahdi Army elements tied to Iran, but analysts say the spike in fighting with Shiite militants potentially opens a second front in the war when the American military is still doing battle with the Sunni extremists of Al Qaeda in Iraq.

"The cease-fire is over; we have been told to fight the Americans," said one Mahdi Army militiaman, who was reached by telephone in Sadr City. This same man, when interviewed in January, had stated that he was abiding by the cease-fire and that he was keeping busy running his cellular phone store.

Sadr City residents say they saw fighting Tuesday between Mahdi militiamen and US and Iraqi forces in several parts of the district. One eyewitness, in the adjacent neighborhood of Baghdad Jadida, who wished to remain anonymous, said he saw a heavy militia presence on the streets, with two fighters planting roadside bombs on a main thoroughfare.

Lt. Col. Steve Stover of the Baghdad-based 4th Infantry Division said that in the span of 12 hours Tuesday 16 rockets were fired at the Green Zone and nine rockets and 18 mortar rounds fell on US bases and combat outposts on the east side of Baghdad. A mortar round hit a US patrol in the northern Adhamiyah district, killing one US soldier. A roadside bomb set a US Humvee on fire in Sadr City but all soldiers inside survived. He said clashes broke out between American forces and militiamen when they attacked several government checkpoints in the district and that some of these posts are now manned by both US and Iraqi forces.

Almost exactly four years ago, American forces and Mr. Sadr's loyalists clashed on the streets of Baghdad's Sadr City and the holy city of Najaf shortly after the US shuttered his newspaper for allegedly inciting violence. That round of fighting lasted several months and at one point the Americans were aiming to arrest Sadr, a cleric whose religious credentials come from his father who was widely influential and loved.

The fighting burnished Sadr's standing among fellow Shiites wary of the US occupation. Over the years, the US has repeatedly accused elements within the Sadrist movement of having ties with Iran and even Lebanon's Hizbullah.

After rockets hit the Green Zone Sunday, US commander in Iraq Gen. David Petraeus said the weapons had been provided by Iran.

On Tuesday, Rear Adm. Greg Smith, spokesman for US-led multinational forces in Iraq, blamed the elite Quds units of Iran's Revolutionary Guards for supplying the 22 107-mm and 122-mm rockets that hit the heavily fortified area of Baghdad that is home to the US Embassy.

"We believe the violence is being instigated by members of special groups that are beholden to the Iranian Quds Force and not Sadr.... Although we are concerned, we know that very few Iraqis want a return to the violence they experienced before the surge," he says.

Admiral Smith says US and Iraqi forces were facing two distinct enemies in Al Qaeda in Iraq (AQI) and the Iranian-trained and supplied special groups. But he adds, "AQI is still Iraq's No. 1 enemy."

There is growing concern, however, that Iran could respond to such US accusations. "This is pretty serious, and if the Iranians do not back down rapidly this will escalate," says Martin Navias, an analyst at Britain's Centre for Defence Studies at King's College in London. "The US has a number of problems with Iran, mainly the nuclear program and its behavior in Iraq. There are many people in the Bush administration who want to hit Iran."

While Iraqi troops fought with Shiite militants in Basra Tuesday, a contingent of Coalition troops, including British and US forces, mobilized at Basra's border with Iran to prevent militiamen from escaping or smuggling in ammunition and weapons, according to a senior security source in the city who spoke on condition of anonymity because of the sensitivity of his remarks.

The US military refused to comment on this, citing "security reasons" during ongoing operations, while another spokesman, Col. Bill Buckner, said the Basra operation was Iraqi-led and that the US was providing "limited assistance" mainly in "intelligence, surveillance, reconnaissance, and ... support aircraft."

The US military has regularly accused Iran of smuggling weapons into Iraq over this border, particularly armor-piercing bombs known as explosively formed penetrators (EFP) that have been blamed for the deaths of many US soldiers in Iraq.

"This is a major operation aimed at outlaws and removing all heavy weapons and explosives from the hands of militias inside the city. It has now escalated into fighting between the Iraqi Army and the Mahdi Army because they are resisting," the security official said by phone from Basra, a few hours after the start of the offensive dubbed "The Knights' Assault."

The Basra-based official said that fighting is now centered in Mahdi Army strongholds in the neighborhoods of Tamimiyah, Hayaniyah, and Five Miles, and that there was also fighting in the neighboring provinces of Nasiriyah and Maysan.

A curfew has also been imposed in Nasiriyah and other southern cities, such as Samawa and Kut, the scene of clashes involving the Mahdi Army over the past two weeks.

One Basra resident reached by phone said he was holed up at his office at the local branch of the ministry of trade, and described the sound of explosions and gunfire as "terrifying."

Two Iraqi Army battalions and five battalions of the National Police's quick-reaction force were dispatched to Basra, where an entire Army division is already stationed.

"The lawlessness is going on under religious or political cover along with oil, weapons, and drug smuggling. These outlaws found support from inside government institutions either willingly or by coercion ... turning Basra into a place where no citizen can feel secure for his life and property," said Prime Minister Nouri al-Maliki in a statement read on state television, which reported that Mr. Maliki along with the ministers of defense and interior were all in Basra to oversee the operation.

The reaction from Sadr's camp was swift. At a press conference in the holy city of Najaf, three of the cleric's top lieutenants condemned the government offensive and accused Maliki, a Shiite, of carrying out a US agenda. They also threatened a nationwide campaign of protests and civil disobedience if US and Iraqi forces continued to fight the Mahdi Army.

Smith, the military spokesman, said the US would not stop this campaign if it remained peaceful.

One of the movement's leaders, Liwa Smaisim, described as "preposterous" US claims that it was only targeting splinter elements of the Mahdi Army.

Hazem al-Aaraji, another leader usually based in Baghdad, said the current fighting was a continuation of a campaign by the movement's Shiite rivals in the Iraqi government to finish it off – a drive it began last fall in southern Iraq.

Sadr's influence was felt throughout Baghdad Tuesday, highlighting the risk that the fight in Basra may spread to the capital, home to a large segment of his supporters. On Tuesday, witnesses reported that gun battles broke out in the capital's Sadr City district between the militia and rivals from the Badr Organization, which is part of Maliki's ruling Shiite coalition.

The offices of one of the branches of Maliki’s Dawa Party was torched in Sadr City, according to the US military.

On Monday evening, pickup trucks filled with chanting Mahdi militiamen, within sight of Iraqi forces, were forcing shopkeepers in many parts of Baghdad's west side to close in protest of US and Iraq Army raids.

On Tuesday, all shops in the Mahdi Army stronghold neighborhoods – Bayiaa, Iskan, Shuala, and Washash – were shuttered. Leaflets saying "No, no to America" were plastered on each storefront. Anti-American banners hung right next to Iraqi government checkpoints.

Several people interviewed in the Amel neighborhood said they were forced by militiamen to return home when they tried to go to work this morning. "This is anarchy," says Ali al-Yasseri.

• Awadh al-Taiee in Baghdad and a Najaf-based Iraqi journalist contributed reporting.