"The attack on Latifiya disrupted the process of their release," senior Iraqi cleric Shaikh Mahdi al-Sumaidi said on Sunday.
Experts have warned that increased military activity against fighters' strongholds in the area could harm the chances of rescuing Radio France International's Christian Chesnot and Georges Malbrunot of Le Figaro.
He also issued a religious decree calling on the hostage-takers to release the Frenchmen.
"We issued a fatwa urging the group [of hostage-takers] to immediately free and not to harm the two French reporters, in recognition of France's position on Iraq," he said.
French still hopeful
Meanwhile France remained hopeful that the two French hostages in Iraq would be freed, although its foreign minister returned empty-handed from a Middle East mission intended to secure their release.
"We have serious reasons to believe both of them are in good health and that a favourable outcome is possible," Foreign Minister Michel Barnier said on Sunday, after discussing the hostage crisis with President Jacques Chirac.
"Our top priority today remains to secure their release. Our priority is their safety," he said. "We are working hard, calmly, cautiously and discreetly."
"The attack on Latifiya disrupted the process of their release"
Shaikh Mahdi al-Sumaidi,
senior Iraqi cleric
Chesnot and Malbrunot have been held in Iraq since 20 August.
Comments by government officials have become increasingly cautious since hopes that they would be released on Friday were dashed.
Barnier, who returned from Amman, Jordan, late on Saturday, spent an hour with Chirac and was due to meet Prime Minister Jean-Pierre Raffarin and senior cabinet members later on Sunday. Raffarin said he remained cautious but hopeful.
A Muslim delegation which went to Iraq to try to help the hostages said the main obstacle seemed to be difficulties in arranging a safe handover since US led forces conducted military operations in the area.
The delegation returned to Paris on Saturday.
Abd Allah Zekri, who was part of the delegation, said he was confident the two hostages would be freed.
"It is a question of security," he said on Saturday, echoing other members of the delegation who said the risk of violence was complicating efforts to arrange a safe handover.
Barnier said he was ready to return to the Middle East at any time after his talks in Jordan, Qatar and Egypt rallied the support of Arab and Muslim leaders. He has set up a crisis team in Amman.
There was no fresh word from the hostage-takers in Iraq, who stunned France when they seized the men and demanded Paris revoke a law banning Muslim headscarves in state schools.
France refused to bow to the demands and the law banning all conspicuous religious symbols went into force on Thursday.
The Muslim delegation says lack
of security is the main obstacle
Meanwhile, Iraqi police said on Sunday the body of an Egyptian who was kidnapped in Iraq last month had been found in the northern part of the country.
Scores of hostages from dozens of countries have been seized in the past five months, and more than 20 have been killed, as part of a campaign to stand against US-led forces and Iraq's US-appointed interim government.
France was shocked to be caught up in the violence as it opposed the US-led war in Iraq and has no troops there.