* At least seven people killed by military strikes
* Al-Qaeda linked rebels hold western city
* Military holds off from full offensive for now
By Ahmed Rasheed
BAGHDAD, Jan 26 (Reuters) - Iraqi government forces battling al Qaeda-linked militants intensified air strikes and artillery fire on the rebel-held city of Falluja on Sunday, and at least seven people were killed, according to hospital officials and tribal leaders.
Religious and tribal leaders in the city, 50 km (30 miles) west of Baghdad, said they feared an imminent assault by the army to expel militants and end a three-week standoff that has driven thousands of people from their homes.
Iraqi security forces have set up a loose cordon around Falluja and have clashed sporadically with insurgents inside. But they have held off from an all-out offensive, to give community leaders and tribesmen time to convince the gunmen to withdraw.
"There is no time left for talks and we're afraid a military solution is looming," said a local cleric in Falluja, the scene of two major battles with U.S. troops in 2004. "A third Falluja battle is at the doors".
On Sunday morning, al Qaeda-linked militants attacked an army post in southern Falluja, seizing two Humvee vehicles and destroying a third, local sources said.
A Reuters witness saw gunmen driving the Humvees, in which they were holding four people wearing Iraqi army uniforms captive.
Hospital officials in Falluja said 42 people had been wounded by the air strikes, artillery and mortar shelling.
Four civilians have been killed in Falluja over the past two days. It was not clear if militants had sustained casualties.
The al Qaeda-linked Islamic State of Iraq and the Levant (ISIL), which is also fighting in neighbouring Syria , took control of Falluja and parts of nearby Ramadi on Jan. 1 with the help of sympathetic armed tribesmen.
A government military offensive in recent days drove al Qaeda fighters from large desert areas they had been controlling along the Syrian border in western Iraq.
Iraqi security officials said no deadline had yet been set for a military operation in Falluja, but voiced concern that further delay may allow insurgents to strengthen their positions.
"We have not received green light to start an assault, but the longer we wait means al Qaeda could get more powerful and complicate our job to defeat them," said a special forces officer.
In Ramadi, where tribesmen have helped the army counter the al Qaeda insurgents, official sources said militant groups had retaken the eastern areas the city after security forces withdrew.
The Ministry of Defence said that 20 ISIL militants had been killed in the military operation in eastern Ramadi.
More than 65,000 people have fled the fighting in Falluja and Ramadi during the past week alone, the United Nations said on Friday.
Violence in Iraq climbed back to its highest level in five years in 2013, with nearly 9,000 people killed, most of them civilians, according to the United Nations.
At least 19 people were killed in other attacks across the country, and the bodies of three men were found with their hands tied behind their backs and bullet wounds in northern Shi'ite areas of Baghdad, police said.
Gunmen opened fire at a military check point killing four soldiers on the western outskirts of Baghdad, and a roadside bomb went off in a commercial street in the Abu Ghraib district, leaving two others dead, police said.
A former army officer was killed along with his wife when gunmen using silenced weapons broke into their house and police said a parked car bomb exploded near a mosque on the northern outskirts of Baghdad, killing three more.
The mayor of the town of Saadiya, 65 km (40 miles) northeast of Baghdad and one of his body guards were shot dead by unidentified gunmen, police said.
Further north, three car bombs went off in the city of Kirkuk, killing five people and wounding 14, police and medical sources said. An army captain was killed and three soldiers were wounded when gunmen opened fire on their patrol in a village north of the city.