The pair abducted August 20 on the perilous road between Baghdad and Najaf are "alive, in good health and being well treated" but still captive, one French diplomat said, on condition of anonymity.

"There is hope and a great chance of a happy outcome. When will this happen? No one can tell. Maybe today, tomorrow or the day after that, but the situation in Iraq is such that it could take not much to scupper the whole process."

Hopes mounted for their release despite the killings reported on Thursday of three Turkish nationals by a group linked to suspected Al-Qaeda operative Abu Moussab al-Zarqawi.

France has been engaged in frantic lobbying on behalf of the kidnapped journalists, with Foreign Minister Michel Barnier shuttling between Arab capitals.

Their kidnappers, the Islamic Army in Iraq, which has claimed several beheadings of foreigners, had given France an ultimatum to lift a controversial new ban on the Islamic headscarf in state schools but it went into effect as planned on Thursday.

However, the whereabouts of newsmen Georges Malbrunot and Christian Chesnot were still not known Friday.

French diplomatic sources in Baghdad said Friday afternoon they had no fresh information on the reporters' fate and expressed irritation at the "completely groundless" speculation of recent days.

French Culture and Communications Minister Renaud Donnedieu de Vabres said late Thursday that the pair had been transferred into the hands of a less fanatical group.

But a source with close links to the insurgents told AFP on condition of anonymity that the pair were still in the hands of the Islamic Army of Iraq and being detained in the Baghdad region.

Another expert on Iraqi militant groups said the two Frenchmen were being held in the Sunni insurgent bastion of Fallujah, west of Baghdad, and suggested that recent US strikes on the town risked complicating efforts to secure their release.

And messages of solidarity continued to pour in, with Shiite radical leader Moqtada Sadr calling for their release in recognition of France's anti-war stance through a sermon read by one of his aides.

Sadr had himself led an uprising against US-led troops last month, which ended with his announcement that he was turning his militia into a mainstream political movement.

But last-minute hitches emerged in that transformation late Thursday with the breakdown of talks on a local deal for the militia's Baghdad bastion of Sadr City.

"We have suspended the negotiations because the Iraqi government wasn't serious in considering our demands," one Sadr negotiator, Naim al-Qaabi, told AFP.

"They asked us to scrap the point requesting US forces not enter Sadr City. We had an agreement that these forces should enter the city for reconstruction purposes only or accompanied by the city police," he said.

Qaabi also charged the government baulked at a demand to create compensation committees for Sadr City residents affected by months of fighting. However, he did say the movement had agreed to hand over its heavy weaponry.AFP