Al-Jazeera television said more than 20 people died. Dozens were injured in the blast, which dug a crater about 3 1/2 feet wide in the street in front of the mosque and destroyed nearby shops, witnesses said. Rescuers pulled the dead and injured from the rubble, and nearby cars were torn into twisted hunks of metal.
Among the dead was Ayatollah Mohammed Baqir al-Hakim, 64, who had just delivered a sermon calling for Iraqi unity at the shrine, the holiest in Iraq.
Shiites in Iraq are embroiled in a generational power struggle, but there was no evidence the bombing was the work of the younger Shiite faction, which has its strongest support in Baghdad's Sadr City slum.
Even so, both the al-Hakim supporters and a prominent figure in the U.S.-backed government blamed Saddam Hussein loyalists. BEGIN POSITION 3 END POSITION 3
Also on Friday, attackers fired rocket-propelled grenades at two U.S. convoys in separate ambushes, killing one American soldier and wounding six, the U.S. military said.
Murthada Saeed al-Hakim, al-Hakim's nephew who spoke to the family in Najaf, told The Associated Press the cleric had been killed.
"I saw al-Hakim walk out of the shrine after his sermon and moments later, there was a massive explosion. There were many dead bodies," said Abdul Amir Jassem, a 40-year-old merchant who was in the mosque and said the cleric had prayed for Iraqi unity.
Ayatollah al-Hakim was the spiritual leader of the Supreme Council for Islamic Revolution in Iraq and had divided his time since the end of the war between Tehran and Najaf, the holiest Shiite Muslim city in Iraq.
Mohsen Hakim, another of the cleric's nephews and a spokesman for the Supreme Council of the Islamic Revolution of Iraq, said in Tehran that Saddam loyalists were the prime suspects behind the killing, and he called on the U.S. occupation forces to identify the murderers.
Ahmad Chalabi, the head of the Iraqi National Congress and a Governing Council member, blamed Saddam, his remnants and his allies from across the border.
"We know they are active in trying to undermine the Governing Council and allies of the U.S.," he said in a telephone interview.
Chalabi denied an earlier report on Al-Jazeera alleging that he had said U.S. forces were to blame for the bombing because they had failed in their responsibility to keep the area secure.
No coalition troops were in the area of the mosque out of respect for the holy site, Pentagon spokesman Lt. Col. Jim Cassella said in Washington.
The top U.S. civilian official in Iraq, L. Paul Bremer, denounced the bombing, saying it demonstrated that "the enemies of the new Iraq will stop at nothing."
"Again, they have killed innocent Iraqis. Again, they have violated one of Islam's most sacred places. Again, by their heinous action, they have shown the evil face of terrorism," Bremer said in a statement.
There has been considerable unrest among the religious factions in Najaf.
The al-Hakims are one of the most influential families in Iraq's Shiite community. The ayatollah's brother, Abdel-Aziz al-Hakim, is a member of the Governing Council and was leader of the armed wing of the Supreme Council for Islamic Revolution in Iraq, headquartered in Iran before the war.
Younger Shiites have been fighting for power with the more traditional Shiite Muslims in the city and region, trying to grab control from the al-Hakim family.
Sheik Muqtada al-Sadr, who is not yet 30, and his young followers have sought to replace more traditional factions as the voice of Iraq's Shiite majority, portraying themselves as the ones doing the most to redress decades of suppression by Sunni Muslims under the Saddam's rule.
"The killing appears to have sought to deny Shiite Muslims an effective role in Iraq's future at a time when Iraq is gradually preparing for elections," said Iranian political analyst Morad Veisi in Tehran.
He said the killers sought to sow discord between Shiite and Sunni Muslims and showed the United States is "incapable of providing adequate security in Iraq."
The blast occurred a week after a bomb exploded at the house of another of Iraqi's most important Shiite clerics, killing three guards and injuring 10 others, including family members. The gas cylinder was placed along the outside wall of the home of Mohammed Saeed al-Hakim in Najaf. It exploded just after noon prayers Aug. 24. Mohammed Saeed al-Hakim is related to the ayatollah who was killed Friday.
A day after Saddam's ouster, a mob in Najaf hacked to death a Shiite cleric who had returned from exile. Abdul Majid al-Khoei was killed at the Imam Ali mosque when a meeting called to reconcile rival Shiite groups erupted into a melee.
Shiites make up some 60 percent of Iraq's 24 million people.
In Friday's attack on the U.S. troops, insurgents fired three rocket-propelled grenades at a supply convoy on a main road northeast of Baqouba, 40 miles northeast of Baghdad, said Capt. Jay Miller from the 67th Armor Regiment's 3rd Battalion.
The soldiers were also hit by small arms fire. One of the wounded soldiers would lose his leg, said Capt. David Nelson from the 4th Infantry Division's 2nd Brigade.
The death raised the number of U.S. soldiers killed in Iraq to 282. Of those, 67 have died in combat since May 1, when President Bush declared an end to major combat operations in Iraq.
Another U.S. Army convoy was hit by a rocket-propelled grenade near a mosque in Fallujah, 30 miles west of Baghdad, said Spc. Margo Doers, a spokeswoman at coalition command in Baghdad. She said two were wounded in the attack, according to early reports.
At the United Nations, key Security Council members said U.S. talk of relinquishing some military authority in Iraq was a first step in trying to deal with the postwar turmoil. But they said a real solution will require more power for Iraqis and the United Nations.
The Bush administration is sounding out nations on a possible U.N. resolution that would transform the U.S.-led force in Iraq into a multinational force authorized by the United Nations with an American commander.
The United States is trying to assess whether the proposal - which was floated last week by U.N. Secretary-General Kofi Annan - would prompt more countries to send peacekeeping troops to Iraq to relieve some of the 138,000 U.S. troops.
The 4th Infantry Division troops carried out three raids across north central Iraq over a 24-hour period and detained 25 people, two of whom were targeted as Saddam loyalists suspected of planning attacks on U.S.-led coalition forces, said Lt. Col. William MacDonald, spokesman for the 4th Infantry Division.