MORE than three months after they lost this key northern town to President Saddam Hussein's forces, Iraqi Kurdish rebels once again control Sulaymaniyah.On Sunday, after three days of fighting, armed peshmergas (as the guerrillas are known) had apparently driven Iraqi troops to areas outside one of Kurdistan's main cities. The Kurds, analysts and guerrillas say, hope their control of Sulaymaniyah will give them the upper hand as they approach a critical stage in negotiations with Baghdad on Kurdish autonomy and on democratization throughout Iraq. While tension reportedly persisted Monday, observers here expect both Saddam's government and the opposition Kurdish Democratic Party to contain the situation in order to preempt any military intervention by the United States. The US - and other coalition forces that opposed Iraq during the Gulf war - have set up a "rapid strike force" in southeast Turkey for the express purpose of protecting Kurdish civilians from attacks by Baghdad. How or why the fighting between the peshmerga and the Iraqi Army erupted last Wednesday is unclear. Massoud Barzani, one of the main Kurdish negotiators in Baghdad, described the fighting as a misunderstanding. The Iraqi government, for its part, accused Iranian-backed insurgents of instigating the clashes. Statements by both sides indicated that they did not want the negotiations, which have reportedly reached an advanced state, to be undermined by the fighting. When reporters arrived here Sunday afternoon, they confronted an unusual situation: The Iraqi Army surrounded the city, but it was the peshmergas who controlled all activity inside the city. They stood guard outside government buildings and on street corners, while civilians conducted their business unperturbed by the presence of the heavily armed militias. In fact, Kurdish civilians said they felt safe in the peshmerga's presence. "They are here to protect us. The Army can no longer harrass us," said a middle-aged Kurd in broken Arabic. The pehsmerga were mainly armed with Kalashnikov rifles and rocket-launchers. Some Kurds said the weapons had been kept in secret places and escaped detection by the Army after the peshmerga withdrew in April. According to the pro-Baghdad governor, Mohammed Nijm Eddin Al Shaqibandi, it was Iranian-instigated insurgents who attacked Iraqi Army posts and government buildings in Sulaymaniyah and Arbil. He claimed the "infiltrators" were dressed in the traditional peshmerga uniform, but that the Kurdish militias fought alongside the Army. But several peshmergas disputed the governor's story. According to accounts by guerrillas and civilians, the fighting was triggered by the Iraqi Army which shot and killed five peshmergas who were "on leave." The Kurds said that a group of peshmerga fighters were going home when they were attacked by soldiers near the Sadawa Army outpost, less than two miles from Sulaymaniyah. Clashes erupted and soon spread. Kurdish civilians and peshmerga claim that the Army started shelling the city and even used phosphorous bombs, killing many civilians. But this reporter saw no signs of heavy shelling. "The Army had tried to seize the opportunity to crack down on the peshmergas," said one young guerrilla. "But it failed as you can see." Kurdish civilians said that more than 500 people - guerrillas, civilians, and soldiers - were killed, and around 300 were wounded. But the peshmergas insisted that only 45 guerrillas were killed in the fighting. The Kurdish guerrillas said they are holding around 6,000 soldiers, who were captured when the Kurds counterattacked the Army, following the Sadawa clashes. "We are keeping the soldiers in Halabshah and other towns in the mountains. But we do want to hand them over," said Ahmed Basman a bearded peshmerga who belongs to the Kurdish Democratic Party led by Mr. Barzani. Mr. Basman and others said that the negotiations for handing over the captured soldiers were going on Sunday between the Iraqi authorities and the Kurdish opposition. There was no further information available about the fate of the captured soldiers. On Sunday Barzani met with Iraqi Prime Minister Saadoun Hammadi. Kurdish civilians and guerrillas here said that they supported the Baghdad talks but hoped that the opposition, after controlling the city, had emerged in a better bargaining position. Barzani, Kurdish, and Arab analysts say, will have to consider the demands of his supporters and other Kurds to keep the situation from erupting, especially since Kurds who oppose the talks could use last week's clashes as a reason to torpedo negotiations. Kurds interviewed said that they wanted the peshmerga to provide them with protection and the Army to stop arresting and harassing people. Shopkeepers and others said that an immediate demand was for Baghdad to provide better food supplies to the north. "There is not enough food. We are tired," said a Kurdish man who refused to give his name. Others who gathered around him nodded in agreement. Iraqi Kurdistan, as is the rest of the country, is badly affected by the economic embargo. But Kurds feel that Baghdad bears some of responsibility for poor distribution. Although it was difficult to check the political identities of the armed peshmargas, given the short period of time reporters were allowed to spend in Sulaymaniyah, all the ones that this reporter interviewed said they belonged to Barzani's party. It seems that Barzani's group immediately took control to prevent rival groups, and those who oppose talks with Baghdad, from exploiting the situation. Kurdish analysts also argue that the other groups agreed to such an arrangement in order to deny the Army an excuse for retaliating against the Kurds. Barzani is considered a moderate force and is in indirect touch with Saddam's government. In a brief interview with the Monitor last week, immediately after the shooting, Barzani said he was not ready to allow the clashes or any group to disrupt autonomy negotiations.