AMERICAN troops have been forced to redeploy to a town that they had handed over to Iraqi forces only a month ago, to quell a rampage of “ethnic cleansing” that killed almost 100 people, many of whose bodies were left strewn in the streets for days.

With the death rate among American troops rising to near-record highs, the return to Balad, 60 miles (100km) north of Baghdad, underscored the limited options facing Washington as a committee led by James Baker, a former Secretary of State, tries to thrash out ways that America can extricate itself from the quagmire.

America’s exit strategies depend on building up Iraqi forces to the point at which they can prevent the country collapsing into a full-blown civil war that would drag the whole oil-producing region into conflict. The days of bloodshed in Balad, which US forces handed over to Iraq’s Fourth Army amid great fanfare a month ago, showed just how far they still have to go.

The US troops returned only after the worst of the Sunni-Shia violence had claimed about a hundred lives. The sectarian conflict cast serious doubts over Mr Baker’s option of basing US forces outside the country in future, ready to return to hotspots when needed.

The killing spree started at the weekend, when 17 Shia construction workers were kidnapped and their decapitated corpses found in an orchard on the outskirts of the mixed town of 80,000 people.

Shias quickly set checkpoints around the town, dragging Sunnis from their cars and butchering them in the streets in an outburst of savagery that spread to surrounding villages.

One policeman in a nearby Sunni-dominated village said that Balad police officers had joined in the spree, which, he said, was orchestrated by al-Mahdi Army militia of Hojatoleslam Moqtada al-Sadr, the renegade former cleric who now has a powerful bloc in the Shia-dominated Government.

Sunnis were fleeing the town for days, some by boat across a river to avoid the death squads waiting at checkpoints.

With US forces back on the streets yesterday, local leaders agreed to a 20-day truce and to form a committee to bury the bodies and hunt for those who were still missing.

Brigadier Nebil al-Beldawi, the commander of the Balad police force, blamed much of the killing on gunmen dressed in black uniforms, the hallmark of al-Mahdi Army. In 2004 the militia fought pitched battles with US forces after seizing the Shia shrine city of Najaf. Police said that the militiamen were yesterday preventing food and fuel shipments from entering the town and had set fire to two petrol tankers on its outskirts.

Al-Mahdi Army is accused of carrying out mass kidnappings, torture and the summary executions of hundreds of Sunnis in Baghdad. Another 11 bullet- riddled bodies were found in a rubbish dump in Sadr City, the militia’s Baghdad stronghold.

The US military has tried to crack down on al-Mahdi fighters but has found its hands tied by Nouri al-Maliki, the Iraqi Prime Minister, who fears that the Sadrists might bring down his fractious Government.

This week US troops arrested a senior Sadrist leader but were forced by Mr al-Maliki yesterday to release him after threats of mass demonstrations by the cleric’s supporters. The release showed the weakness of Mr al-Maliki’s position and the growing rift between him and the US military.

Meanwhile, tales of horror continued to emerge from Balad. Ahmed Ali, a local Sunni lorry driver whose wife’s family were murdered, said that Sunni families in nearby towns were arming themselves to fight off militia raids. He said that the Shia militiamen gave his in-laws two hours to leave their house. “But after half an hour they broke into the house and killed four of them,” he said. Sunni houses were also mortar bombed during the massacres.

The violence in Balad is a chilling example of what could lie ahead for Iraq if the sectarian fighting in Baghdad spills out into the surrounding countryside, mostly farmland with mixed communities.

That would mean US troops putting themselves in the middle of a complex and deadly civil war — something that Mr Baker’s committee is charged with avoiding.

After the announcement yesterday of ten more deaths, the number of American fatalities this month reached 67, putting October on track to becoming the deadliest month since the war began.

Times Recommends

• Times Charity Appeal: SolarAid
• Is it Black Monday all over again for Dubai?
• Behind the scenes at the biggest deal