Ayad Allawi wants respect, and for as long as anyone can remember in Iraq, that means showing that you're the toughest s.o.b. around. So when radical Shiite militiamen attacked a police station in Najaf, the new prime minister called on U.S. Marines to crush the rebellion. Planes bombed and strafed, and infantrymen blasted their way across a vast cemetery last week, flushing out enemies who hid amid tombs and catacombs. Before long, soldiers battled militiamen in a half-dozen cities across the south. By the time truce talks collapsed on Saturday, several hundred Iraqis and six Americans were already dead.

Allawi struck on other fronts, too. He banned reporting by the Arabic news channel Al Jazeera for a month, saying that it was fomenting violence. Then one of his judges issued an arrest warrant for Ahmad Chalabi, a key political rival, for counterfeiting Iraqi dinars. (Denying the charge, Chalabi spokesman Haidar al-Musawi said, "This is the dirtiest, ugliest, stupidest conspiracy I've ever heard of in my whole life.") Another warrant was issued for Chalabi's nephew, Salem, who headed the tribunal building a legal case against Saddam. The charge in his case was murder. (From London, Salem denied the accusations and refused to return to Iraq, saying he couldn't expect a fair trial.) In the midst of it all, Allawi reinstituted the death penalty.

American officials seemed pleased. Some were worried that Allawi's image had been a bit soft. "No one thought of him as a No. 1, someone who could lead the country," said a State Department official. "He was the nice guy, more the guy in the room looking to bridge the gap between other players. Those guys don't always do well as leaders of countries with strongman politics. He was aware of this." The official says that this spring, in meetings with senior U.S. and U.N. diplomats, Allawi was taking readings on Chalabi. "When he sensed Chalabi was on the decline, he just sort of replaced him as a favorite." But "the vibe was that Allawi himself was saying that if he was going to do the job, he would need to toughen up his image ... He's always been intelligent, but he needed to do something about the wimp factor."

Saddam set the bar very high (or very low) for what it means to be tough in Iraq. If Saddam were in charge, rebel-cleric Moqtada al-Sadr wouldn't be alive, much less uttering calls to fight "until victory or martyrdom." For his part, Allawi recently denied stories that he had personally executed prisoners, or chopped people's hands off, even though some think the rumors of ruthlessness have been good for him. Still, Allawi could not easily order foreign troops into Najaf's Imam Ali Mosque, the most revered site in Shiite Islam, where al-Sadr and hundreds of his armed followers were holed up. So he offered a truce, and continued to invite al-Sadr to join the political process. His forces hesitated even to arrest Chalabi, who defiantly returned to Iraq last week despite the warrant against him--and remained at large last weekend.

Neither carrots nor sticks seemed to be very effective. The Justice minister, Malik Dohan al-Hassan, announced that he was resigning over the Chalabi affair. Vice President Ibrahim al-Jafari, referring to the campaign to crush al-Sadr's militia, said, "War is the worst choice, and it is only used by a bad politician." Al-Sadr was lightly wounded in the fighting, which only added to his growing reputation. And as ceasefire talks broke down, al-Sadr's fighters still dominated the historic center of Najaf. Worse, his Mahdi Army fighters now control the entire Baghdad slum of Sadr City, whose 2 million residents make up more than a third of the capital's population.

This is the dilemma of the new Iraq: it's supposed to be an emerging democracy--an Iraqi national conference was due to convene last Sunday under U.N. auspices to help lay the groundwork for elections--but how can legitimate voting take place without stability? Yet to make any attempt to impose order, Allawi depends on the firepower of an unpopular foreign army. And if Allawi gets aggressive and then fails to impose his will, he risks inflating the power of radicals like al-Sadr.

How these dilemmas are resolved will certainly determine the course of the U.S. occupation, but it could also tip the balance in the U.S. elections. Already, George W. Bush and John Kerry are trading accusations and debating who could handle Iraq better. The debate is just as lively among soldiers in Baghdad. U.S. Army Spec. Jamel Mercado, 22, from Lebanon, Ore., has nearly been killed twice, lost two of his buddies and killed several Iraqis. He says he would have voted for Kerry if he hadn't missed the absentee ballots when they were passed out. Beside him in battle are Bush supporters. "I think Kerry is a--sissy," says another soldier in the 2nd Battalion, 122nd Infantry, Kyle Neuenschwander, 24. "It's almost like he doesn't want to fight."

Inside the sprawling slum of Sadr City, members of the Mahdi Army were itching for a battle, and already feeling like victors. Never mind that raw sewage ran down the gutters, giving an overpowering stench in the 115-degree heat. Well-organized groups of militiamen stood guard, guns at the ready in case Coalition forces appeared. Around the corner from the One-Eyed Woman's Market, an outdoor emporium largely abandoned because of recent fighting, fighters cruised around, waving AK-47s and shouting taunts urging Americans to come and get them.

Traps had been laid. A NEWSWEEK correspondent watched as other fighters brazenly planted more than a dozen hidden bombs, or improvised explosive devices (IEDs). First they set fires inside tires lying in the street, which melted the macadam underneath. Then they sank the IEDs into the molten asphalt and let them cool. Within hours, there was no sign of the devices, which could be detonated with the remote control of a car alarm whenever Coalition vehicles passed by. "The U.S. can't go any further," said one Mahdi Army commander, Sheik Amar, 28. "Even the helicopters aren't flying overhead." Allawi flexed his muscles, but in Sadr City and many cities and neighborhoods like it, insurgents and thugs still ruled the streets.