"If the security situation does not improve, you will lose $102 million, which is already allocated and approved. This amount of money will be transferred to peaceful and open towns," the leaflets, which were dropped on Tuesday, said.

"We ask the citizens of Falluja ... to make way for multinational forces to start the rebuilding of Falluja, and to make way for American forces to move freely in the city and make real estimates for construction."

The leaflets said one project that Falluja could lose was a $35 million water-treatment upgrade.

"Our fight is not with the honest citizens of Falluja, but with those who want to destroy the future of Falluja and those who are doing this for their own benefits," the leaflet added.

Since US-led forces ousted Saddam Hussein 15 months ago, the city west of Baghdad has been a centre of a movement against the US-led foreign military presence in Iraq. 

Safe haven

On 31 March, four American security guards were killed and their bodies burned, provoking US military action.

Critics doubt the wisdom of
withdrawing from Falluja in April 

Fierce fighting raged throughout April between Falluja fighters and the US army, which besieged the city and demanded that Falluja hand over the killers of the security guards.

Heavy US bombing of the city claimed the lives of hundreds of civilians, but 
US forces did not enter the city. It withdrew from Falluja and handed over responsibility for security to an Iraqi brigade.

Critics say the move has turned Falluja into a safe haven for anti-US fighters, effectively putting the city under their control.

But Falluja defenders are proud of keeping the city free of a US military presence and argue it is the first liberated city.

In recent weeks, US warplanes have launched several air strikes on the city, targeting the alleged hideouts of Washington's most wanted man in Iraq, Abu Musab al-Zarqawi.

The US has allocated $18.4 billion for rebuilding across Iraq, but the country's infrastructure shows little sign of any progress even in stable areas.