An aide to Muqtada al-Sadr says the cleric has agreed to a peace plan for Najaf, but wants to negotiate how it is implemented.
The official in Baghdad says the Shiite leader wants to ensure his fighters won't be arrested. The official said al-Sadr has other minor conditions.
Al-Sadr has made contradictory statements in the past and a previous truce collapsed earlier this month.
A Shiite delegate told the National Conference in Baghdad that al-Sadr had accepted a peace deal delivered in Najaf. The plan requires the cleric to disarm his fighters, pull them out of a shrine and turn them into a political party. In return they get amnesty.
But gunfire and explosions continued in Najaf even after the deal was announced. The militia has been fighting U.S. and Iraqi forces most of the month in Najaf.
Iraq's interim government has threatened to storm the Imam Ali Shrine if al-Sadr refuses to leave.
In other developments:
Fighting in Najaf has killed six people and wounded 23 others since Tuesday morning, Hussein Hadi of Najaf General Hospital, said Wednesday.
In all, the U.S. military says the fighting in Najaf has killed hundreds of militants, though the militants deny that. Eight U.S. soldiers and at least 40 Iraqi police have been killed as well.
The fighting in Najaf, especially near the shrine, has angered many among the country's majority Shiite population and cast a pall over the National Conference, which had been intended to project an image of amity and inclusiveness on the road to democracy.
The conference decided to send an emergency peace delegation to Najaf on Tuesday to try to solve the crisis.
The delegation's peace initiative demanded that al-Sadr's Mahdi Army militia disarm, leave the Imam Ali shrine and become a political group in exchange for amnesty.
Qais al-Khazali, an al-Sadr spokesman, welcomed the proposal and said the militants ready to negotiate it, "but there are no peaceful negotiations with the continuous fighting. I blame the Americans for interrupting the negotiations, because they didn't stop fighting."
The U.S. military said it did not conduct offensive operations during the meeting between the delegation and al-Sadr's aides at the shrine.
"We sat still during the entire time on purpose," said Maj. David Holahan, executive officer of the 1st Battalion, 4th Marine Regiment.
A journalist with the delegation reported that the sound of gunfire and explosions seemed to die down considerably once the group arrived at the shrine compound, which was filled with more than 1,000 young men, chanting and beating their chests. However, more than a dozen outgoing mortar rounds were fired from an area very close to the shrine, apparently by the militants.
A top conference official said Wednesday the delegation would not return to Najaf.
"These delegates will not go again, they presented their proposal, the ball is now in his (al-Sadr's) court," the official said on condition of anonymity. He said a new delegation could go to Najaf from the 100-member council after it is established.
The defense minister said Wednesday that if the shrine is stormed, U.S. troops will play only a supporting role.
"There will be no American intervention in this regard. The only American intervention would be aerial protection and also securing some of the roads that lead to the compound. As for entering the compound, it will be 100 percent Iraqis," Shaalan said.
State Minister Qassim Dawoud said the planned raid on the shrine would send a message to insurgents throughout the country.
"This will be a civilized lesson for those in Fallujah, Samarra, Mosul, Yusufiyah or Basra. There is no lenience ... with those people," he said.
Al-Sadr militiamen fought a series of gunbattles with British troops in the southern city of Basra, with one British soldier and one militant reported killed.
The National Conference, a gathering of more than 1,000 religious, political and civic leaders, was extended a fourth day into Wednesday because of disagreements over how to elect a council that is to act as a watchdog over the interim government until elections in January.