The Iraqi Government declared a state of emergency and hurriedly shut down Baghdad this morning after a fierce gunfight involving Shia and Sunni militias, as well as US and Iraqi forces, broke out just outside the city's Green Zone.

On a day of intermittent violence up and down the country, the Prime Minister, Nouri al-Maliki, gave the 5 million inhabitants of the Iraqi capital just two hours notice of a curfew that began at 2pm local time and will expire at 6am tomorrow. Traffic in Baghdad had already been shut down from 11am to 3pm today because of violence last Friday.

The cause of the emergency curfew was an extended gun battle between a joint US-Iraqi patrol and a set of impromptu insurgent roadblocks just north of the fortified Green Zone, which contains the American and British embassies in Baghdad and most government buildings.

Although the circumstances of the battle are unclear, Ned Parker, correspondent for The Times in Baghdad, said early reports indicated that after an initial clash between US and Iraqi forces and Sunni insurgents, members of the al-Mahdi army, the notorious Shia militia, arrived and opened fire: "It seems like it was a free-for-all," he said.

Rocket propelled grenades and automatic gunfire brought havoc to Haifa Street, one of the main thoroughfares in Baghdad. The battle ended when a US airstrike was called in. Coalition troops later went from house to house, searching for insurgents. Two Iraqi policemen were reported injured.

The clashes came as a further 19 deaths were reported in Baghdad and a car bomb exploded in Basra, killing five people and wounding 18 in a marketplace. At least 10 people were killed by a bomb left in a bag in the tiny village of Hibhib, where Abu Musab al-Zarqawi, the former leader of al-Qaeda in Iraq, died after a US airstrike on June 7.

Elsewhere, American commanders said they had captured a senior leader of al-Qaeda in Iraq north east of Baghdad. The suspect, who has not been named, was described as the leader of the group's central Iraq cell.

In a separate raid, the US military said it had killed four insurgents near Fallujah, 65 kilometers (40 miles) west of Baghdad. Two of the men were wearing suicide bomb vests when they were shot, the US military said.

Today's violence comes two days before the Iraqi Government will announce the structure of a wide-ranging amnesty for insurgent groups which have fought against the US-led occupation. In the summer 2004, the US Government rejected a similar idea by then interim Prime Minister Iyad Allawi.

Both the Iraqi President and the speaker of the Iraqi Parliament told The Times yesterday that Iraqi politicians were considering the possibility of an amnesty for those who have killed foreign soldiers. Insurgents who have killed Iraqi civilians will be treated as murderers.

"The one who put the bomb to kill the occupier is different from the one who put a bomb to kill an innocent human being. What can we say to the American forces who killed 100,000 Iraqis? This reconciliation is between the different sectors in Iraq," said Mahmud al-Mashaadani, the speaker of the Iraqi Parliament.

"General amnesty for Iraqis who did not commit grave crimes means everyone. But those who killed American soldiers and others they are a special case," said Mr Talabani. "It must be discussed with the Americans. If they want those people to be included, it would be good. If not, this is another thing."

• Saddam Hussein has ended his hunger strike after missing just one meal, a US military spokesman said today. The fallen dictator announced he would refuse to eat after one of his lawyers was murdered on Wednesday, but only refused his lunch yesterday. "They all took their dinner meal," said the spokesman.

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