U.S. forces in Iraq say they are making progress in the fight to put down a Shi'ite revolt, but have suspended combat against Sunni rebels in the town of Fallujah west of Baghdad. At the same time, gunmen demanding an end to the military occupation of Iraq continue to hold a handful of foreigners hostage.

Three Japanese civilians are among those being held by gunmen who are threatening to kill them if Japan does not agree to withdraw its troops from Iraq by Sunday. In Baghdad, Dan Senor, spokesman for U.S. Administrator Paul Bremer, ruled out any compromise with hostage takers and delivered a threat of his own.

"We will not negotiate with any terrorist that takes hostage any individual and we will seek to capture or kill them," he said.

Japan has rejected demands for the withdrawal of its troops, which are not deployed in combat but performing reconstruction work.

Friday marks the first anniversary of the fall of Saddam Hussein. For many Shiites in Baghdad, it was a day to rally in front of a picture of rebel cleric Moqtada al-Sadr, who is calling for an end to the U.S.-led military occupation and urged his followers to attack U.S. forces.

U.S. Army General Mark Kimmitt says coalition forces have been moving southward out of Baghdad to secure cities where Shi'ite militias loyal to the cleric have partially taken over towns by seizing government buildings, including in the town of al-Kut.

"By and large, when coalition forces come in an attack, the Sadr forces shoot and scoot. We're fairly comfortable that the town of al-Kut is well on its way to coming back under coalition control," Gen. Kimmitt said.

West of Baghdad, American Marines have now suspended combat in Fallujah after several days of intense fighting there against Sunni rebels.

"To give a political track an opportunity to attempt to reduce the violence. They're conducting those discussions at this time," he said.

By some accounts, the fighting has killed several hundred Iraqis along with at least five Marines who were in Fallujah searching for those responsible for the killings last week of four American civilians. The battle to pacify the town has resulted in some of the heaviest combat in Iraq since President Bush declared an end to major combat operations nearly a year ago.