Iyad Allawi, the Iraqi prime minister, indicated that time was fast running out for those who were harbouring insurgents there.

"This chance could be the last," he said in a statement, imploring "the leaders and notables of Fallujah to use it to find a political solution".

But with military preparations at an advanced stage and American officials suggesting a major offensive could begin next week, there appeared little hope of a deal.

"Fallujah is a cancer," said Maj Gen Richard Natonski, commander of the 1st Marine Division, who would lead any ground attack. "We can't have a sanctuary for the enemy and expect to make progress."

He said he had received no request from the Iraqi government to carry out military operations and offered no opinion on whether a peaceful solution was possible. "I don't know who they're negotiating with."

But he made clear that his men were ready for action in Fallujah. "It's a rats' nest but if we have to go in and clear it out we will." He urged the foreign elements in Fallujah and those loyal to Saddam Hussein's regime to come out and fight.

"We can take these guys on if they show their faces. Not a problem whatsoever. That's why they've resorted to the tactics they have [suicide bombings and landmines] because they know every time we face them we kill them."

Speaking in his headquarters at Ramadi, 30 miles west of Fallujah, he said the insurgents appeared to be preparing for battle. "There's some indications they are fortifying." Intelligence reports have suggested that elaborate booby traps have been laid.

In recent weeks, fighting has intensified in Ramadi, the capital of al-Anbar province. At least two Iraqis were killed and eight wounded in clashes in the city yesterday.

But Maj Gen Natonski said: "Ramadi's not going to fall. We don't have to worry about that. We've had some tough fights here, especially lately, but we've taken the fight to the enemy."

Violence has surged in Iraq in the past few months and during the holy month of Ramadan, which ends in just over two weeks. Yesterday, two American soldiers were killed in rocket and bomb blasts.

A group calling itself the Army of Ansar al-Sunna issued a statement saying it had killed 11 kidnapped members of the Iraqi National Guard, beheading one and shooting the other 10.

At the weekend, at least 49 members of the new Iraqi army were summarily executed by the side of a remote road after being ambushed.

In signs of tensions between the Iraqi government and the United States, Mr Allawi accused the Americans of negligence in failing to protect the soldiers.

After his comments were reported, aides sought to play them down, emphasising that Mr Allawi would await the outcome of an investigation into the atrocity, which appeared to have been carried out with inside information.

But Maj Gen Natonski said American and Iraqi forces would fight side by side if there was a battle for Fallujah, and there was no doubt who would win.