Iraq's Defense Ministry said al-Sadr and his followers would be granted amnesty only after they abandoned their uprising in Al-Najaf and other cities.
In Washington, national security adviser Condoleezza Rice reacted sceptically to the news, saying al-Sadr could not be trusted.
There were no signs of a let up in fighting in Al-Najaf. Reports spoke of sporadic gunfire through the night between al-Sadr's Imam Al-Mahdi Army and U.S.-led forces.
Meanwhile, Iraqi militants who say they captured a U.S. journalist last week are said to have threatened to kill him if U.S. forces do not leave Al-Najaf.
For the latest news on Iraq, see RFE/RL's webpage on "The New Iraq".