Sistani, 74, abruptly returned to Iraq Wednesday from the UK, where he had spent a few weeks to undergo heart surgery. He left Basra, about 350 km south of Najaf, Thursday morning in his bulletproof vehicle, accompanied by hundreds of supporters aboard SUVs.
Hours before his arrival in Najaf, mortar shells hit a mosque in the neighboring town of Kufa, killing at least 25 people and injuring over 60.
It was not clear who was responsible for the attack, with the American military asserting that they were not involved.
In Najaf, the shrine of Imam Ali, among Iraq's holiest sites, has been occupied by followers of radical Shi'ite cleric Moqtada al Sadr and his Mahdi army for the past three weeks.
The shrine has been surrounded by American tanks and soldiers, but the forces are hesitant to bombard and storm the compound fearing a Muslim backlash.
Iraq's Interim Prime Minister Iyad Allawi and Najaf Governor Adnan al-Zurufi declared a 24-hour cease-fire from the time al-Sistani arrives in Najaf, to give Sadr and his men time to consider Sistani's peace plan. Iraqi and US forces would also "temporarily" pull back from positions near the shrine, they said.
However, "the operation will start again if the militia disagree on what Ayatollah al-Sistani says," the governor warned.
On Wednesday, Sistani's aide Hamed al-Khafaf unveiled a peace proposal which calls for Najaf and Kufa to be declared weapons-free cities and the withdrawal of all foreign forces from Najaf. It also seeks compensation from the government for those affected by the fighting there.