Can anyone stop a civil war?

So how much," I ask Ahmed, pulling out a wad of dollars, "will the RPG7 cost?" I try to sound nonchalant as, heart pounding, I sit in a car parked down an alley inside Sadr City, a labyrinthine Baghdad slum occupied almost entirely by Shia Muslims, and try to negotiate the purchase of a cache of weapons, including a rocket-propelled grenade.

Ahmed, whom I have known for just 15 minutes, has already enthusiastically offered to sell me a dozen Kalashnikovs and pistols, but now he drops his voice to a whisper and looks furtively around.

"Up until two months ago, I can get you RPGs cheap, about $80 each," he begins, communicating through my interpreter. "You could see them in the market place, stashed under the fruit and vegetables, as much as you want. But since January, the price shot up to $600. Some Sunni Muslims came from Fallujah and bought them all up."

He shakes his head in disgust. "The Americans knew about this and could have done something but now it is too late. Now they are using the weapons to blow up the Shia, to make civil war."

Almost every Iraqi I meet is scathing about the American conduct, and they blame them for the knife-edge on which the country now finds itself.

Yesterday, in the wake of another series of devastating attacks, more than 170 were reported killed as multiple explosions struck Shi'ite shrines in Karbala and Baghdad, marking the bloodiest day since the war ended nearly a year ago.

Today the key question on every Iraqi's lips is this: will their country descend into sectarian civil war? Or will peace and democracy prevail?

Ordinary Iraqis insist that there is no great enmity between the sects. They liken the differences between Sunni and Shia to those between Protestant and Catholic, with Ali Sistani, the feted Shia religious leader, portrayed as the Pope. Both Sunni and Shia share the five pillars of Islam, they say, and there is a surprising degree of intermarriage.

It is mainly in the political arena that their experiences diverge - the minority Sunni have controlled Iraq for decades, from long before Saddam took power, and the Shia have ruthlessly been denied political representation. Now that power is within the Shias' grasp, many Iraqis fear that the Shia will seek revenge, or to control Iraq without due protection for minorities.

Last month, the minority Kurds were targeted by terrorists. Yesterday it was the turn of the Shias, who comprise 60 per cent of the population.

Nobody knows precisely who is masterminding this violence, but the Americans are offering a $10 million reward for the capture of Musab Zarkawi, an associate of Osama bin Laden, whom they claim is the leader of an al Qaeda cell operating in Iraq using Sunni insurgents, and who, they say, has called for "spectacular attacks against Shias".

Civil war would be an unmitigated disaster for George Bush and Tony Blair, who have failed to find any weapons of mass destruction and now justify the war on the grounds that it will deliver a better future for ordinary Iraqis.

With the March 20th anniversary of the coalition forces' "shock and awe" invasion of Iraq almost upon us, I went to Baghdad 10 days ago where I walked the streets and spoke to a wide range of people, attempting to take the pulse of the country and to assess where Iraq is heading.

Baghdad is a vortex of chaos. In the poorer neighbourhoods, rotting garbage lines the road and stinking sewage runs down the middle of the street.

The rat-a-tat-tat of gunfire and the dull thud of mortars intermittently pierce the air, but this has become common background music and nobody turns a hair.

Currency dealers have set up shop on roadside tables, each with their pile of cash fastened with an elastic band and ready to change dollars into dinars, ever-present reminders of the moribund Iraqi banking system.

And every few hours, vast swaths of the city black out for hours at a time, because the ageing electricity supply system is still as woefully under-powered now as it was on the day that Saddam Hussein fell.

But nothing captures the essence of Iraq today - no rules and no one in control - as succinctly as the lawlessness of the highway. None of the traffic lights work so each teeming intersection is negotiated according to the whims of the drivers, many piloting vehicles so old and beaten up that they look like they've been through a metal crusher.

Anything goes on Baghdad's roads. I watch in horror as my driver, faced with a snarl-up, makes a U-turn and starts heading back against the flow of traffic, dodging oncoming speeding vehicles, until he can find a place to exit. I look back to see two dozen other vehicles have followed suit.

The Iraqi people - who are attempting to get back to normal life - look at this anarchy and feel raw anger against the Americans. "In the beginning, lots of Iraqis were happy to see the Americans come," Hathem Zalzala, a 36-year-old Shia doctor who earned a pathetic $2 a month under Saddam, tells me.

"At first the Americans treated people nicely, and they promised us rebuilding. But you look around Baghdad and you don't see one crane. No one wants civil war, but with more bombs every week, and so little good news, they have created a vacuum in which doomsday could happen."

Zalzala, like most government employees, has seen his salary increase a hundred times since the war. But for every winner there is inevitably a loser.

Ali, 40, is a Sunni and a die-hard Saddam loyalist whose job under the former regime was to serve tea in Saddam's Republican Palace to visiting foreign dignitaries. He worked for Saddam from 1992, as one of 28 servers, and he proudly counts the president of Venezuela and the prime minister of Jordan among the VIPs he has attended personally.

To get to Ali's modest house in a commercial street in south Baghdad, I pass pavements piled high with televisions and washing machines still in their cardboard boxes - evidence of the new consumer boom sweeping the country. But Ali is not enjoying the boom - he used to earn 20 times the salary of a doctor, but now he is broke and unemployed.

Lighting up a cigarette, Ali, who is afraid to tell me his family name lest Shia militants take issue with his views, says brazenly: "I loved Saddam. During his time, there was security in this country.

"When Saddam was captured, I started punching my sofa, crying. American forces are occupying our country and they give us nothing. I support violence against the Americans, I support the bombs. If I have the ability, I bomb them myself."

But do you, I ask Ali as he struts around the room, also support violence against Shias?

"With the help of God, we hope there will be no war between Sunni and Shia," he says. "I'm not afraid of Sistani coming to power. Any honest man can rule Iraq - Sunni, Shia or Kurd - as long as they provide security for Iraq. All I ask God is that Sistani be a moderate man."

Yesterday, in the face of the shocking provocation, Sistani exhibited admirable restraint, restoring calm among his people, while angrily calling on the Americans to do more to control Iraq's borders.

Outside his heavily-guarded house in the holy city of Najaf, 160 miles to the south of Baghdad, his supporters have placed a banner which reads: "Terorism (sic) reward: no direct elections." Sistani knows that onepersonone-vote will translate into power for the Shia and he is doing all he can to proceed along that path.

But Sistani is not the only Shia leader with the power to unleash civil war. Much more radical - and consequently more worrying - is the "Sadr group", led by the hardliner Muqtada Sadr, who, like Sistani, has an awesome following and is touted as the only other leader in Iraq who can mobilise a million men to march on Baghdad in 24 hours.

Unlike Sistani, Sadr has been loth to accept the UN's decision to postpone any elections until January 2005. Sadr, whose father was killed by Saddam's Baathist regime, also lives in Najaf, and it is there that I make my way for an interview with his chief spokesman, Fuad Fawzi Abas.

On the way to Abas, I pass a vibrant street market where a man wielding a giant butcher's knife slits the throat of a camel and begins to skin it out on the street.

A crowd gathers as the camel's blood runs down the cobbled road, and the butcher, brandishing his bloody blade and grinning, turns to the murmuring appreciative throng and roars: "This camel is better than Saddam."

It is this primitive, bloodcurdling instinct that the terrorists seek to unleash, and that the leaders seek to contain. Abas - a white turban on his head, scholarly spectacles balanced on the end of his nose - is a picture of sobriety as he leads me down a back alley to a bare room.

Having removed our shoes, we sit flanked by two security guards on a carpet and talk. I discover that he is a qualified car mechanic with a penchant for poetry, including English literature and Shakespeare. "Shall I compare thee to a summer's day?" he beams.

He seems to have developed a keen interest in sport, too, pronouncing, after describing how Saddam tortured him in prison: "I have great respect for Manchester United."

But after bonding over football, it is his leader's political stance I am most keen to understand. "Muqtada Sadr would like to send a message to all the world that he is a man of peace, that he hate all the killing, all the destroying," Abas begins.

"Muqtada Sadr supports democracy in Iraq with elections as soon as possible. He gives thanks to God that he get rid of Saddam Hussein. He believes that when the Americans leave, the bombs will stop."

Does he think that civil war could break out in Iraq? I press him. "No!" he replies emphatically. "The Iraqi people are well educated and we won't allow anyone to make the difference between Sunni and Shia and Kurdish to a war."

Leaving Najaf, I drive into a sandstorm. It is hard to see more than 100 yards ahead - which seems an apt metaphor for trying to peer into what the future might hold.

A few days later there is some eagerly awaited good news: against all odds, all Iraq's sectarian groups have unanimously agreed to a remarkably liberal interim constitution.

History will judge which event turns out to be the more significant - the tragic murder of 170 people, or the tortuous negotiations that ordinary Iraqis hope will lead them slowly, but inexorably, to their first ever democracy.