BAGHDAD, Iraq – Hundreds of Iraqi civilians and policemen, some waving pistols and AK-47s, rallied yesterday in the southern city of Basra to denounce “British aggression” in the rescue of two British soldiers.

The Basra governor threatened to end all cooperation with British forces unless Prime Minister Blair’s government apologizes for the deadly clash with Iraqi police. Britain defended the raid.

In London, Britain’s defense secretary, John Reid, and Iraq’s prime minister, Ibrahim al-Jaafari, tried to minimize the effect of the fighting, saying it would not undermine the relationship between the two nations or their determination to lead Iraq to peace and democracy.

But the fighting raised new concerns about the power that radical Shiite militias with close ties to Iran have developed in the region, questions about the role of Britain’s 8,500-strong force in Iraq and doubts about the timetable for handing over power to local security forces.

There has been disagreement about just what happened late Monday, when British armor crashed into a jail to free two British soldiers who had been arrested by Iraqi police.

According to the British, Shiite Muslim militiamen moved the two soldiers from the jail to a private home while British officials tried to negotiate their release with Iraqi officials. After raiding the jail, the British say they rescued the soldiers in a nearby private home in the custody of Shiite militias.

Earlier that day, a crowd attacked British troops with stones and Molotov cocktails.

Troops had tried to negotiate with the crowd in Basra “but that had no effect and it became more hostile quite quickly after that,” Sergeant Eddie Pickersgill, whose face was bruised by a rock, said in television interviews in Britain yesterday.

Iraq’s interior minister, Bayan Jabr, disputed the British account of the raid that followed. He told the British Broadcasting Corp. the two soldiers never left police custody or the jail, were not handed over to militants, and that the British army acted on a “rumor” when it stormed the jail.

But Basra’s governor, Mohammed al-Waili, said the two men were indeed moved from the jail. He said they were placed in the custody of the militia of radical Shiite cleric Muqtada al-Sadr, the al-Mahdi Army.

“The two British were being kept in a house controlled by militiamen when the rescue operation took place,” Mr. al-Waili said. “Police who are members of the militia group took them to a nearby house after jail authorities learned the facility was about to be stormed.”

At first, Basra police said the two British soldiers shot and killed a policeman before they were taken into custody, but on Tuesday Mr. al-Jaafari’s spokesman, Haydar al-Abadi, said the men – who were in civilian clothes – were grabbed for behaving suspiciously and collecting information.

A British Foreign Office spokeswoman in Baghdad, Lisa Glover, said the two soldiers “were challenged by armed men in plain clothes … and they obviously didn’t know who they were being challenged by.” But “when Iraqi police asked them to stop, they did,” she told the Associated Press.

She said British officials negotiated with Iraqi authorities in Basra for the release of the two soldiers with an Iraqi judge present. “When it became apparent they were no longer at the station, but had been moved elsewhere, we naturally became concerned.”

Iraq’s national security adviser, Mowaffak al-Rubaie, a Shiite politician who has criticized the British raid as “a violation of Iraqi sovereignty,” acknowledged that one problem coalition forces face is that insurgents have joined the ranks of security forces.

“Iraqi security forces in general, police in particular, in many parts of Iraq, I have to admit, have been penetrated by some of the insurgents, some of the terrorists as well,” he said in an interview with the BBC on Tuesday night.

Officials in Basra, speaking on condition of anonymity because they feared for their lives, said at least 60% of the police force there is made up of Shiite militiamen from one of three groups: the Mahdi Army; the Badr Brigade, the armed wing of the Supreme Council of the Islamic Revolution in Iraq; and Hezbollah in Iraq, a small group based in the southern marshlands.

The militias have deep historical, religious, and political ties to Iran, where many Shiite political and religious figures took refuge during the rule of Saddam Hussein.

Yesterday, about 500 civilians and policemen held a protest in downtown Basra denouncing “British aggression.”

The demonstrators, waving pistols and AK-47s, shouted “No to occupation!” and carried banners condemning “British aggression” and demanding the freed soldiers be tried in an Iraqi court as “terrorists.”