BAGHDAD (Reuters) - U.S. President George W. Bush pressed Iraqi leaders again on Monday to form a government as it looked increasingly likely that the main Shiite Alliance would drop its candidate for prime minister to break the deadlock.

The alliance had been expected to decide on whether to replace Ibrahim al-Jaafari as its nominee but it delayed a meeting on a final decision even after intense pressure from Kurdish and Sunni leaders left it with no other options.

At stake is the unity of the Alliance, which fears that removing Jaafari, who only won his nomination by one vote, would split the bloc apart at a time when Iraq needs strong leadership.

Jaafari's critics -- including some in his own ranks -- accuse him of monopolizing power and governing ineffectively.

The stalemate since December elections has seen Iraq slide closer to all-out civil war, with sectarian bloodshed and the emergence of militia death squads adding to the woes of Iraqis already demoralized by insurgent suicide bombings and attacks.

"Iraq's leaders need to rise to the moment, to put aside their personal agendas and take charge of their destiny," Bush said in a speech in Washington.

Delaying the formation of a government creates a vacuum that "terrorists" can exploit and slow down progress, he said.

Alliance officials said the chances were slim that Jaafari would stay on but they needed more time because removing him threatened to split the bloc.

Dhafir al-Ani, spokesman for the Iraqi Accordance Front, the biggest Sunni Arab bloc, said the Front had informed the Alliance of "the continuation of our stand" to reject Jaafari.

Iraqi President Jalal Talabani, a Kurdish leader, told the Shiite-dominated United Iraqi Alliance on Sunday that the Kurds would not drop their opposition to Jaafari, a soft-spoken physician who has resisted mounting calls for his resignation.

The Alliance is the biggest bloc in parliament, but needs Sunni and Kurdish votes to secure a majority.

Even senior Alliance partners oppose Jaafari but the Dawa party leader has refused to step down.

Iraq's acting speaker of parliament said on Sunday he would call on the assembly to convene in the next few days, raising the possibility of an end to the political paralysis.

Some leaders want a parliamentary vote to decide the Jaafari issue, but that could further divide the Shiite bloc.

The United States and Britain have repeatedly urged Iraqi leaders to bury their differences and fill a political vacuum in which sectarian violence has flourished.

"The longer Iraq's delay in forming a unity government, the greater the risk that the terrorists and former regime elements will succeed in their efforts to foment division, and to stop the progress of Iraq democracy," Bush said.

He said Americans and Iraqis have sacrificed much for the goal of a democracy in Iraq, and "Americans and Iraqis alike are waiting and watching to see what this sacrifice will produce".

Insurgents ambushed Interior Ministry special forces escorting a convoy along the main road of the former rebel stronghold of Falluja on Monday, Interior Ministry sources said. Three civilians were killed in ensuing clashes.

In southern Baghdad, gunmen killed three members of the same family at their house, police said. It was the type of attack that has become familiar since the February bombing of a Shi'ite shrine triggered a surge of sectarian violence.

A planned meeting between the United States and Iran on stability in Iraq had raised hopes that the neighboring power could use its influence over fellow Shiites leading the Baghdad government to help push the political process forward.

But U.S. ambassador Zalmay Khalilzad, who will represent Washington in the talks, said on Sunday the meeting will not be held until after an Iraqi government emerges.