Ibrahim al-Jaafari's stubborn fight to stay on as Iraq's prime minister looked all but over on Tuesday after a party in his main Shi'ite alliance offered to name a replacement to break a four-month-old political deadlock.

Iraqi Prime Minister Ibrahim al-Jaafari is seen in Baghdad March 14, 2006. Jaafari's stubborn fight to stay on as the main Shi'ite Alliance's choice for Iraq's prime minister looked all but certain to end as a party in the bloc said on Tuesday it was ready to offer a replacement. [Reuters]

But the United Iraqi Alliance was still seeking a face-saving formula for the man it nominated in February to step aside without breaking the bloc apart, Alliance sources said.

The latest blow to Jaafari came from the small Fadhila party, whose public offer to name another candidate increased pressure on the Alliance to drop its choice for the top job.

"If the Iraqi Alliance cannot nominate Jaafari, anyone from the Alliance can present their own candidate whom they see as the right person to save the political process and get us out of this impasse," Fadhila spokesman Sabah al-Saadi said.

Iraqis elected a new parliament in December, but their leaders have failed to form a unity government that might prevent the current surge of sectarian killings from sparking civil war.

Fresh bloodshed was a reminder that the next prime minister will still have to tackle an insurgency and sectarian tensions that are tearing Iraq apart.

A car bomb exploded outside a Baghdad restaurant frequented by policemen, killing at least five people, including three policemen, and wounding 13, Interior Ministry sources said.

Politicians held several meetings to discuss weekend comments by Egyptian President Hosni Mubarak, a Sunni Arab, who said Shi'ites in Iraq and other Arab states were more loyal to Shi'ite Iran than to their own countries.

Jaafari, a former exile in Iran, said Iraq would show its displeasure by boycotting a meeting of Arab foreign ministers due to discuss the Iraq crisis in Cairo on Wednesday.

"Iraq will not take part and we hope this will remind those concerned of the need to stand beside the Iraqi people," he told a news conference.

Jaafari gave no sign he would step down, saying Iraqis could not make concessions at the expense of democracy, a reference to the Alliance ballot that nominated him by a one-vote margin.

"I have no choice but the choice made by the Iraqi people," said the soft-spoken physician who heads the Dawa party.

Former Prime Minister Iyad Allawi said breaking the deadlock would do little to help tackle the long-term security crisis and warned that sectarian politicians and their militias posed a threat more dangerous than insurgent bombings.

"Now the new form of terrorism is different to the first form of terrorism. It is ideological, political and sectarian terror in Iraq," Allawi, whose secular alliance has 25 seats in the 275-member parliament, told Reuters in an interview.

"We can confront and eradicate the first one but the second one is the danger that has started and hit our society."

Saadi told Reuters the Alliance could decide Jaafari's fate on Tuesday but other Shi'ite sources said more time was needed.

Fadhila leader Nadim al-Jaberi withdrew from the Alliance ballot at the last moment, and has since promoted himself as a candidate acceptable to all Iraq's communities.

The Alliance is expected to bow to intense pressure from Kurdish and Sunni Arab politicians to drop Jaafari, who is also opposed by some Shi'ite leaders within the bloc. His critics accuse him of monopolizing power and ruling ineffectively.

A spokesman for parliament, which must approve any new prime minister, said a date for the assembly's next session would be announced on Wednesday, a possible indication of some movement.

As Iraqis awaited a breakthrough, casualties mounted.

The bodies of four beheaded Iraqi soldiers were found in Jurf al-Sahkar, 50 miles south of Baghdad, police said.

In the capital, a bomb attack on a small bus killed three people and wounded four in Sadr City, a stronghold of radical cleric and militia leader Moqtada al-Sadr, Jaafari's main supporter in the Alliance outside his own Dawa party.