A senior Shi'a official in Baghdad said up to 150 hostages, including women and children, were being held since guerrillas in cars carrying rocket-propelled grenades and AK-47s entered Madaen late on Friday and seized them.
But a police official has said the number of hostages could be as few as three.
|‘I am afraid we will pay the price for media reports which are not true’|
"Three areas where we suspected there were terrorists were raided but no one was found. There are other areas we will attack soon."
Troops armed with machineguns and assault rifles were moving in vehicles on the edge of Madaen, about 40km southeast of Baghdad, and US troops had cut off two key bridges leading into the area.
Sunni insurgents have threatened to kill the hostages unless all Shi'as leave the town, raising fears that the standoff could spill over into a wider sectarian conflict.
Majority Shi'as, long oppressed under Saddam Hussein, are now the most powerful political force in Iraq along with the Kurds. Under Saddam, the minority Arab Sunnis enjoyed huge privileges.
The crisis comes at a bad time for Iraq's squabbling leaders, who are struggling to form a government 11 weeks after January 30 elections.
"Everyone wants the government to accelerate efforts to put an end to these types of incidents," said Jawaad al- Maaliki, a senior member of the Da'awa Party, part of the Shi'a alliance that won the January 30 elections.
Officials said on Saturday night that US and Iraqi troops already had started searching for the hostages in parts of Madaen, in an area dubbed the "Triangle of Death" because of the frequency of guerrilla attacks.
Iraq's state-run al Iraqiya television said the guerrillas had threatened to kill the hostages within 24 hours, but that could not be independently confirmed.
Some people in Madaen, where shops have started closing in expectation of fighting, insisted there was no hostage crisis.
"I am afraid we will pay the price for media reports which are not true. Troops are cutting off the entrance to Madaen. If they (Iraqi forces) attack we will defend ourselves," said a resident by telephone who declined to be identified.
The hostage-taking and a resurgence of violence will step up pressure on Iraq's new leaders to deliver on promises to improve security after the elections.
Some Iraqi officials say the inability of the new leaders to form a government may be encouraging insurgents by creating the impression of weakness and indecision.
The national assembly's session on Sunday was dominated by talk of the Madaen crisis as discussions opened.
Shi'a politician Jawad al-Maliki criticised the government for allowing the crisis to escalate and said he had heard reports that insurgents planted landmines to keep troops out of Madaen.
Renewed violence raised concerns that insurgents had regrouped after a US offensive crushed their main base of Falluja in November and millions of Iraqis defied suicide bombers to vote.
An attack on a US camp in the guerrilla stronghold of Ramadi killed three US soldiers and wounded seven on Saturday night, the military said on Sunday.
US forces say they saw a 20 percent decline in attacks in the weeks after the polls, but in the past week a series of car bombings and shootings have returned Iraq to the steady bloodshed that has gripped the country over the last two years.
A suicide bomber entered a restaurant in Baquba, northeast of the Iraqi capital, and killed at least nine people, including six policemen, on Saturday, a National Guard official said.
In Haditha, about 200km northwest of Baghdad, gunmen killed police chief Hussein al-Jughaifee, his son, nephew and cousin, and then blew up his house, police said.
The Shi'a official in Baghdad said some of the Madaen hostages had been taken to two schools in the mixed Sunni and Shi'a town and a mosque in the adjacent town of Salman Pak.
The abductions were the latest in a series of tit-for-tat kidnappings caused by growing antagonism between Sunnis and Shi'as in Madaen.
April 17 2005 at 12:13PM
- By Thaier al-Sudani and Majid al-Hameed Near Madaen, Iraq
- Additional reporting by Waleed Ibrahim and Mariam Karouny in Baghdad