(Recasts with U.S. comments, call for holy war, Rice tour)

By Mariam Karouny and Claudia Parsons

BAGHDAD, Jan 17 (Reuters) - Bombs hit Kirkuk and Baghdad on Wednesday as the Iraqi government prepared to launch a security plan as part of what has been billed as a last chance to head off a civil war that could draw in neighboring countries.

In a sign the government was scrambling to meet political commitments as well, officials announced progress on a new oil law and reforming a ban on former Baath party members -- both key demands of Washington and disgruntled Sunni Arabs.

But the violence and rifts between the two major factions in Iraq looked set to grow as a leading Sunni militant group, Ansar al-Sunna, called on Sunnis to wage a holy war against Shi'ite Muslims throughout the country.

In Washington, U.S. President George W. Bush tried to shore up support within his Republican party for his strategy to send about 21,500 extra U.S. troops to Iraq to stabilize Baghdad and Anbar provinca.

With polls showing that most Americans oppose the build-up, some senators from the Republican and Democratic sides unveiled a nonbinding resolution opposing the troop increase, although Bush has vowed not to be swayed by Congress or public criticism.

Senate Foreign Relations Committee Chairman Joseph Biden drafted the resolution along with Armed Services Committee Chairman Carl Levin, a fellow Democrat, and Republican Chuck Hagel, a long-time war critic.

"I believe that when a president goes way off course on something as important as Iraq, the single most effective way to get him to change course is to demonstrate that his policy has waning or no support -- from both parties," Biden said.

RICE WINS ARAB SUPPORT

Just after one of Baghdad's bloodiest days in weeks, a car bomb ripped through a crowded market in a Shi'ite area of the city, leaving the mangled hulk of a taxi and blood on the street.

"Why Sadr City? Is it because we're Shi'ites?" one man shouted as angry crowds picked through the wreckage.

Sadr City is the Shi'ite stronghold of the Mehdi Army, a militia loyal to radical Shi'ite cleric Moqtada al-Sadr.

In the northern city of Kirkuk, a suicide bomber in a truck packed with explosives killed 10 people at a police station in a huge blast that buried people in rubble.

On Tuesday, at least 105 people were killed in bombings and a shooting in the capital, including 70 at a Baghdad university not far from Sadr City. The same day, the United Nations said more than 34,000 Iraqi civilians were killed in violence last year.

Prime Minister Nuri al-Maliki, a Shi'ite Islamist, blamed the university bombings on loyalists of former President Saddam Hussein, whose execution in December fueled sectarian tension.

Sunni Arabs are also angry at the botched execution of two Saddam aides on Monday.

U.S. Secretary of State Condoleezza Rice wound up a visit to the Gulf on Wednesday after winning support from Arab allies for U.S. plans to deploy more troops.

But Gulf countries, particularly Saudi Arabia, said the Iraqi government had to help curb sectarian clashes and that Shi'ite militias blamed for killings must be disbanded.

In Kuwait, Rice was told Washington needed to engage Syria and Iran to help end violence in Iraq -- a move recommended by a bipartisan U.S. study group that has been ignored by Bush.

INTENSE DISCUSSIONS

The Iraqi government is preparing a crackdown in Baghdad, involving Iraqi and American reinforcements.

U.S. and Iraqi officials have been at pains to portray the plan as Iraqi-conceived and Iraqi-led, sparking concerns among some in Washington about U.S. troops being at the command of Iraqi armed forces whose sectarian loyalties are in question.

U.S. Brigadier General Terry Wolff said on Wednesday that Iraqi and U.S. commanders were holding intense discussions to finalize how the partnership would work.

"Any time you put coalitions together, it is challenging," he told a news conference.

The U.S. military announced the deaths of two more soldiers on Wednesday, both killed in Anbar in western Iraq.

On the political front, an Iraqi committee grouping senior national and regional leaders agreed on a final draft of a crucial oil law that sets rules for sharing revenues and boosting output, an Oil Ministry spokesman said.

Iraq has the world's third-largest proven oil reserves, so sharing revenues and establishing whether the industry is controlled centrally or by regions is a sensitive issue.

The bill, which goes to the cabinet next week for approval, calls for a panel headed by the prime minister to oversee all contracts and with the power to review existing deals signed under Saddam or by the Kurdish regional government. (Additional reporting by Susan Cornwell, Alastair Macdonald and Ahmed Rasheed)

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