Al-Sadr's spokesman Qays al-Khazali said on Wednesday that the leader has dropped demands for a withdrawal of occupation forces from residential areas and releasing detainees.
"But after the intervention of the religious authorities, Sayyid Muqtada al-Sadr has lifted these conditions and will negotiate without them being met," said al-Khazali in Najaf, where al-Sadr has taken refuge. Al-Sadr had also called on the occupation to lift the siege on Falluja.
Al-Khazali said a delegation of Shia religious authorities would negotiate on his behalf.
Al-Sadr's supporters have been rising up against occupation forces in south and central Iraq, leading to bloody clashes in which the occupiers lost control of several city centres.
The United States has said it will kill or capture al-Sadr and destroy his al-Mahdi Army militia, and has beefed up its troop presence on the outskirts of Najaf, one of Iraq's holiest cities.
On Tuesday, al-Sadr appointed Abd al-Karim al-Anzi to discuss peace proposals with officials in Baghdad.
The announcement came briefly after an Iranian foreign ministry delegation arrived in Iraq on Wednesday to help settle a standoff between the occupation and al-Sadr, according to one of his aides.
Muqtada al-Sadr has been holed
up in Najaf for almost two weeks
"We are going to meet with them, and they may meet with Sayyid al-Sadr," said Haidar Aziz, who presents himself as a close aide and personal interpreter of the Shia leader.
But the foreign ministry's director for Gulf affairs, Husayan Sadeghi, said upon arrival at a Baghdad hotel that there would be "no mediation".
"There is no mediation. We are here to have a clear assessment of the situation to have a better understanding of what's going on in Iraq," said Sadeghi, who is heading a five-member team.
He said the delegation may go to Najaf to meet with al-Sadr.
"Iran as a neighbouring country has always been concerned over the negative developments in Iraq," said Sadeghi.
He refused to say whether he would be meeting with occupation or Iraqi officials on Wednesday or to give any further details about his plans.
Iran's official IRNA news agency said earlier that Sadeghi would meet occupation officials, Iraqi politicians and religious figures.
Al-Sadr's aide said the Iranian delegation was "here to help resolve the crisis, and we are hopeful that solutions could be found."
The United States has made a formal request to Iran to help ease mounting violence in Iraq and Tehran is now making an effort to mediate in the conflict, said Iranian Foreign Minister Kamal Kharazi on Wednesday.
Mainly Shia Iran has kept al-Sadr at arms length and is seen as closer to the Supreme Council for Islamic Revolution in Iraq (SCIRI), a Shia religious party headed by Abd Aziz al-Hakim who sits on the US-appointed Iraqi Governing Council.