After a group of angry delegates met government representatives to demand an end to fighting in Najaf, most of the estimated 1300 participants attempted to forge ahead with the day's agenda.
Four sessions were held to discuss the transition process, human rights, reconstruction and the issue of justice for those who suffered under former President Saddam Hussein.
"We had a frank discussion about the country's security concerns and drafted a list of priorities and issues," said Aasi al-Shammari, 45, a farm owner from the northern village of Mushairfa close to the Syrian border.
Other delegates took turns to deliver speeches on everything from sports and youth, mass graves and women's rights, savouring an opportunity to speak out.
"I greet you from the mass graves of Babylon province," said an emotional delegate, Ali Abu al-Amir. "We have paid with the blood of martyrs massacred by Saddam to be able to stand here today."
Before the first session ended in a storm of protest over Najaf, US-appointed President Ghazi al-Yawir and Prime Minister Iyad Allawi hailed the conference as a first step to democracy and vowed to conquer those standing in their way.
"We admit this is a less-than-perfect process as we would have preferred elections, but at least we have the courage to take the first step," al-Yawir said in his opening address.
"Armed opposition is rejected, but opposition through a democratic and peaceful process is welcome," he said, in a clear reference to fighters loyal to Shia leader and cleric Muqtada al-Sadr.
US appointed PM Iyad Allawi (R)
spoke of the challenges ahead
Allawi saluted the gathering as "the biggest challenge to the forces of evil".
In his first public appearance since arriving in Iraq on Friday, UN special envoy Ashraf Jahangir Qazi appealed for peace and tolerance.
Dozens leapt out of their seats as soon as the diplomat finished, shouting: "As long as there are air strikes and shelling we can't have a conference."
Yahia Musawi, from a Shia political grouping that helped defuse a spring uprising by al-Sadr, jumped on the stage before he was forced down by chief organiser Fuad Maasum.
"It is time that you heard us and we ask that military operations stop in Najaf immediately and dialogue takes place," Musawi shouted.
Delegates formed a committee to discuss the events in Najaf, press the government to stop all military operations and resume talks. It named three delegates to meet with Allawi and other ministers.
"We ask for the following: a halt to all military operations in Najaf. Second, an end to all armed presence in Najaf, opening the door to dialogue," said Shaikh Husayn al-Sadr, a relative of Muqtada al-Sadr, in a statement.
During the break, mortar bombs exploded in the Green Zone, shaking the building as organisers of the conference screamed at participants to get away from the windows of the convention centre.
The health ministry said two people were killed and 17 wounded when one mortar fell in the Allawi district near Haifa Street, one of the areas included in a government curfew imposed as a security measure because of the conference.
On the last day of the conference delegates will select 81 members of the national council to advise the US appointed interim government as it paves the way for national elections scheduled for January 2005.
Female delegates to the
conference also participated
The other 19 seats have already been allocated to members of the defunct interim Governing Council that served between Saddam's fall and the creation of the caretaker government in early June.
Some delegates demanded that the council should be allowed to impeach members of the government if they decided they were not serving the interests of Iraqis.