Aug. 15 (Bloomberg) -- Iraqi Prime Minister Ayad Allawi should crush a rebellion in Najaf and other cities to avert an erosion in the credibility of his interim government, Republican and Democratic U.S. lawmakers said.

There's ``very much at stake'' in the showdown between Allawi and Moqtada al-Sadr, the Shiite cleric who leads the so- called ``Mahdi Army,'' said Senator Richard Lugar, the Republican chairman of the Foreign Relations Committee, on the ``Fox News Sunday'' program.

``If you don't crush al-Sadr'' in Najaf, unrest will spread and ``the fledgling forces of the Iraqis, the police that are trying to be trained, are not going to make it,'' Lugar, of Indiana, said.

U.S.-backed Iraqi forces are preparing to attack al-Sadr fighters garrisoned at the shrine of Imam Ali in Najaf, Iraqi Interior Ministry spokesman Sabah Kadhim said, according to Agence France-Presse. A Baghdad conference of delegates advising Allawi on the transition to a permanent government issued a call for peace.

Allawi faces a ``dilemma,'' said Senator Joseph Biden of Delaware, the senior Democrat on the Senate panel, on ABC's ``This Week'' program. ``He either basically surrenders co- control of the future of Iraq to al-Sadr and his militia, or he takes control.''

Sporadic fighting resumed in Najaf today after the break down yesterday of peace talks intended to halt fighting that has taken the lives of hundreds of people. Allawi has ordered his newly formed army to spearhead the attack on al-Sadr, who aims to force the U.S. to withdraw from Iraq.

Iraqi Forces

The U.S. should rely on Iraqi forces to attack the shrine, Biden said. If U.S. troops ``do damage to that shrine, we find ourselves in a position not only in more trouble in Iraq but throughout the entire Muslim world.''

Allawi's dilemma stems from a U.S. failure to provide him with sufficient aid and political and military power, Biden said. ``This is a consequence of us giving sovereignty to Allawi but not capacity.''

In Baghdad, mortar attacks rocked the Rasheed Hotel, where about 1,300 regional civic, religious and political leaders were meeting to appoint a council to advise the interim government on preparing for elections in January. The blasts killed two people, Sky News said, revising an earlier count of 10.

Allawi ``is now without any option except to probably use force and use that force directed by the interim Iraqi government and Iraqi forces, not American forces,'' Senator Chuck Hagel, a Nebraska Republican on the Senate committee, said on ABC's ``This Week.''

To contact the reporter for this story: James Tyson in Washington at jtyson@bloomberg.net.

Last Updated: August 15, 2004 15:12 EDT