With the formal end of US-led occupation just two weeks away, al-Sadr issued a statement from his base in Najaf calling on his Mahdi Army to hold to the terms of a ceasefire.
"Each of the individuals of the Mahdi Army, the loyalists who made sacrifices ... should return to their governorates to do their duty," the statement said.
The call came a day after President George Bush said the United States would not oppose a political role for al-Sadr, only weeks after branding him an ''anti-democratic thug''.
Dan Senor, spokesman for the US-led administration in Iraq, suggested al-Sadr caved in to US military pressure and Shia clerics who brokered a truce between his army and American forces.
"He is seeking to save face. Iraqi political leaders are working out agreements with him. He has expressed his support for the interim government, which was unheard of many weeks ago," he told CNN.
Al-Sadr's fighters launched an uprising on 4 April, which put US forces under tremendous pressure.
This month the unpredictable young leader agreed a truce with the US military and Iraqi authorities after weeks of fighting in the Shia holy cities of Najaf and Karbala.
al-Sadr enters into political matters. But
this does not mean he will enter elections"
Muqtada al-Sadr's spokesman
Al-Sadr's office sent a letter to the Shia religious establishment on Wednesday, saying Iraqi police would be welcome back in his stronghold of Kufa, near Najaf, where he has frequently delivered fiery anti-American sermons.
Initially, Sadr took the US military by surprise with the scale of his revolt, launched after occupation authorities closed the young preacher's newspaper, detained one of his top aides and announced that he was wanted for murder.
The April uprising, which coincided with heavy fighting between US marines and Sunni Muslim fighters in Falluja, west of Baghdad, pushed Iraq closer towards chaos.
Hundreds of al-Sadr's black-clad men with green headbands were killed in battles that spread to a sprawling ancient cemetery on the edge of Najaf and damaged mosques and shrines sacred to millions of Shia across the world.
Apart from casualties, al-Sadr was constantly approached by Shia religious leaders in an attempt to cease the revolt, especially around Shia holy sites.
As the truce calmed the streets of Najaf and Karbala, al-Sadr played a new card, declaring conditional support for Iraq's interim government and announcing plans to form a political party that could fight elections due to be held by January.
Some US officials insist al-Sadr must face Iraqi justice in connection with the killing of a cleric hacked to death in a Najaf shrine soon after last year's US invasion.
But al-Sadr's unexpected move seems to have opened political doors just before the planned 30 June handover.
Interim President Ghazi al-Yawir said al-Sadr's "smart move" could enable him to take part in mainstream politics.
Under a deal announced by the interim government this month, private militias are to be disbanded and members of illegal militias banned from political office for three years.
Both Iraqi and US presidents said
al-Sadr could enter Iraqi politics
Despite Bush's olive branch for al-Sadr, some US officials say he should be barred from politics.
"There is an Iraqi arrest warrant issued against Muqtada al-Sadr that ties him to a brutal murder, and I don't see how he would be eligible for political office before that matter is resolved," US spokesman Dan Senor said on Tuesday.
National elections are due to be held by 31 January under a US-backed plan for Iraq's political transition.
As Iraqi leaders brace for the challenge of running a country suffering from violence and economic hardships, it seems al-Sadr may keep the interim government guessing.
"Sayyed Muqtada al-Sadr enters into political matters. But this does not mean he will enter elections," Sadr's spokesman Qais al-Ghazali said on Wednesday.
"Our position is clear, al-Sadr's entry into politics will not be direct but we have ideas...There are no nominees or names suggested."