At least 40 people were killed at a stop along a major Shiite pilgrimage route to Karbala.
As US forces pull back, Iran is expected to widen its influence in Iraq, despite the two countries' history of war and mistrust.
Residents are moving back to Saidiyah, a neighborhood once racked by sectarian violence that is now guarded by a 12-foot-high wall.
Battles continued to rage Sunday between the radical cleric's Mahdi Army and Iraqi and US forces.
Recent clashes between the militia and Iraqi forces threaten to undo a lull in the group's activities.