(adds comment from U.S. general)
BAGHDAD, Feb 8 (Reuters) - Shi'ite cleric Moqtada al-Sadr's Mehdi Army is "unassailable" in its Iraqi strongholds and the U.S. military would risk reigniting the violence that almost sparked civil war if it provokes it, a report said on Friday.
The International Crisis Group (ICG) said it was "fanciful" to imagine the defeat of the group, once described by Washington as the biggest single threat to peace in Iraq, as it was too entrenched in its bastions in Baghdad and southern Iraq.
Sadr, the son of a revered Shi'ite cleric killed under Saddam Hussein, led two uprisings against U.S. forces in 2004.
Late on Thursday, U.S. soldiers arrested a senior figure and three others from a "rogue" Mehdi Army unit linked to attacks on U.S. and Iraqi security forces in eastern Iraq's Wasit province.
U.S. and Iraqi soldiers also clashed with gunmen in a Sadr stronghold in Baghdad on Thursday.
The ICG report said pressuring the Mehdi Army, which has tens of thousands of fighters, would likely trigger fierce resistance in Baghdad and escalate strife among Shi'ites in the south.
Attacks across Iraq have fallen 60 percent since June, which U.S. officials say is due to an extra 30,000 U.S. troops, the rise of mainly Sunni Arab neighbourhood security units and a move by Sadr in late August to declare a six-month ceasefire.
The ICG said the drop in violence was mainly due to Sadr's Aug. 29 declaration. On Thursday he ordered Mehdi Army members to maintain the freeze, which expires later this month, amid growing signs of impatience in the militia.
U.S. commanders say they believe Sadr will extend the truce.
"I don't view Moqtada al-Sadr making that kind of decision (to end the ceasefire)," Brigadier-General Will Grimsley, deputy commander of U.S. forces in Baghdad, told Reuters during a visit to the town of Tarmiya, just north of the capital.
"EXPLOSION OF VIOLENCE"
The ICG report said militants claiming to be Mehdi Army members had executed "untold numbers" of Sunni Arabs in response to attacks by al Qaeda during sectarian violence in which tens of thousands died and took Iraq to the brink of civil war.
"If the U.S. and others seek to press their advantage and deal the Sadrists a mortal blow, these gains are likely to be squandered, with Iraq experiencing yet another explosion of violence," the ICG report said.
The U.S. military has been aggressively pursuing what it describes as "rogue elements" of the Mehdi Army who it says have defied Sadr's ceasefire order.
"On occasion we see some resurgence of activity on the part of these rogue or special groups and we'll counter those just like we will any other destabilising element," Grimsley said.
The ICG report said the ceasefire gave Sadr the chance to transform his bloc, which it described as a "deeply entrenched, popular mass movement of young, poor and disenfranchised Shi'ites", into a legitimate political movement.
Sadr told six ministers from his movement to quit the government last April when Prime Minister Nuri al-Maliki refused to set a timetable for the withdrawal of U.S. troops from Iraq.
The U.S. military's policy of targeting Sadrist militants and supporting his Shi'ite rivals, the Supreme Islamic Iraqi Council, was understandable but "short-sighted", the ICG said.
The report also said the U.S. military should stop recruiting Shi'ite neighbourhood police units to fight the Mehdi Army and concentrate on building a non-partisan security force.
Sadrists often complain of being targeted by U.S. and Iraqi security forces.
Additional reporting by Waleed Ibrahim in Baghdad and Michael Holden in Tarmiya; Editing by Michael Winfrey
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