Iraqi militants won a major political victory on Tuesday when Prime Minister Nuri al-Maliki ordered US and Iraqi units to lift a blockade around the flashpoint suburb of Sadr City.
American commanders believe Shia gunmen may be holding a kidnapped US soldier in the east Baghdad slum and since last week their troops have been maintaining a cordon of checkpoints and roadblocks around the area.
Iraqi and US forces have also launched raids inside the district, most recently on Tuesday morning, when they arrested three suspects.
But US forces began lifting the blockade shortly before Maliki's 5.00 p.m. deadline, triggering a triumphant response from local youths who waved banners from racing trucks and mopeds in an impromptu victory rally.
"I know that the checkpoints down Canal Street have been removed and that this is opening up, but the other specifics of what the forces are doing right now I can't comment on," said US spokesman Lieutenant Colonel Chris Garver.
Canal Street runs along the entire southern flank of Sadr City, a Shia district home to 2.5 million people, which has effectively been sealed off by US and Iraqi forces since the middle of last week. Anger at traffic jams and lost business had been growing inside Sadr City, and on Tuesday militants loyal to cleric Moqtada al-Sadr ordered a general strike, shutting down shops, offices and schools.
"Your patience and unity brought victory," rejoiced a statement from Sadr's office after the checkpoints started coming down.
The Shia prime minister, who owes his job to the votes of pro-Sadr lawmakers, responded to the protest by ordering the US blockade lifted.
"The prime minister, in his capacity as commander in chief of the armed forces, has decided to lift the blockade of the access roads to Sadr City and other areas of Baghdad," a statement from Maliki's office said.
Maliki said the checkpoints should be lifted by 5:00 p.m. (1400 GMT), but added that it could be reimposed after dark during Baghdad's nightly curfew.
Rescuing missing soldiers is a priority for US forces, but snubbing Maliki's command would risk reopening rifts in the Iraq-US alliance just days after a White House damage limitation exercise papered over an earlier spat.
Sadr City decided to protest after suspected Sunni insurgents managed to get into the Shia bastion on Monday despite the American security operation to set off a bomb attack that killed 26 civilians and wounded many more.
Iraqi special forces backed by US military advisers carried out a raid into Sadr City on Tuesday and arrested three suspects.
"The purpose of the mission was to search for the missing US soldier and to capture the leadership of a kidnapping cell reported to have knowledge of the soldier's location," the US military said in a statement.
An American soldier of Iraqi descent was abducted on October 23 after he slipped out of Baghdad's heavily fortified Green Zone in order to visit his secret Iraqi wife at the home of relatives in the city.
The kidnap triggered a rescue operation by thousands of US infantry around Sadr City, home to several thousand gunmen from Sadr's Mehdi Army militia.
The soldier's Iraqi relatives told AFP that they believe he is being held by a faction of the Mehdi Army.
Baghdad's bloodshed continued when a car bomb targeted Palestine Street in the heart of the city, near the busy Beirut Square, killing three civilians including a woman and wounding seven passers-by, medics said.
Later, police announced that between 30 and 40 Shia bus passengers had been kidnapped at a false security checkpoint north of the city.
And, as night fell, a car bomb ripped through a wedding party in northern Baghdad, killing 15 guests including four children, a security official said.
The capital is in the grip of a brutal turf war between rival Shia and Sunni factions, despite a massive security operation that has put 15,000 US troops and more than 40,000 Iraqi soldiers and police on the streets.
There has been no let up in the challenge facing US forces either.
Two American soldiers were killed in Baghdad on Monday, bringing military deaths for October to 103, the fourth highest monthly toll since the US-led invasion of March 2003 overthrew the government of Saddam Hussein.
With political progress towards national reconciliation achingly slow and the daily death toll showing no sign of diminishing, US President George W. Bush is facing intense domestic pressure to change course.
Opponents of the war are set to make gains in next week's congressional midterm elections, but the White House is standing behind its strategy of building up Iraqi security forces to enable them to fight on their own.