Militants led by the group al-Qaeda in Iraq took control of the centre of rebel city Ramadi for several hours after firing mortars at US and government bases today.

The Reuters news agency reported that around 400 heavily-armed masked men took to the streets at around 10am local time (0700GMT) and set up checkpoints along major entrance and exit routes.

At least four mortar shells were found within the grounds of the US compound and a rocket-propelled grenade (RPG) was fired at an observation post.

American troops, who are mostly stationed in a garrison on the eastern edge of the city, initially issued curfew warnings over loudspeakers telling locals to stay indoors for the next three days.

Later, security forces played down the significance of the unrest saying that there was no damage and no casualties. They said it was little more than a propoganda exercise.

“At 9.30 am (0630GMT), an RPG was fired at a joint US-Iraqi observation post which resulted in no damage or casualties,” said US marines spokesman Captain Jeffrey Pool.

“As of 2pm (1100GMT), there were no signs of any significant insurgent activity anywhere in the city,” he added.

The offensive by al-Zarqawi's group came just hours after President Bush told Americans that Iraqi forces were gradually taking control in Iraq, which would allow the US to reduce its troop levels there. Mr Bush told the US Naval Academy in Annapolis that the Army was still on course for "complete victory".

As the militants dispersed they left behind leaflets which proclaimed that al-Qaeda in Iraq, led by Jordanian militant Abu Musab al-Zarqawi, was on the verge of taking over.

One of the leaflets read: "Its followers will burn the Americans and will drive them back to their homes by force. Iraq will be a graveyard for the Americans and its allies."

Ramadi, which lies 60 miles west of Baghdad at the southwest tip of the Sunni Triangle, hosts the main railway crossing into Syria and has long been considered a staging post for foreign fighters.

It is the capital of the Anbar province, the heartland of the insurgency, and became a bolthole after US forces overran the stronghold of Fallujah a year ago. US forces carried out a major operation on insurgent camps to the west of the city yesterday which may also have triggered today's offensive.

Reports suggest that the assault began in the early hours with a sustained rocket attack on the US base and on a nearby local governor’s building, where tribal leaders and US military officials were due to meet for the second time this week.

Residents said that within minutes, scores of gunmen ran into the city’s streets launching attacks with mortars and Russian-made Katyusha rockets.

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