Anti-American cleric Muqtada al-Sadr — long a thorn in the side of the U.S. military and Iraqi government — intends to disarm his once-dominant Mahdi Army militia and remake it as a social-services organization.

The transformation would represent a significant turnabout for a group that, as recently as earlier this year, was seen as one of the most destabilizing anti-American forces in Iraq. For much of the past several years, the Mahdi Army, headed by Mr. Sadr, a Shiite cleric, controlled sizable chunks of Baghdad and other cities. Its brand of pro-Shiite activism had the side effect of pitting Iraqis against each other, helping to stir worries of civil war.

Recently, however, the group has been hit by a largely successful Iraqi military crackdown against militia members operating as criminal gangs. At the same time, Mr. Sadr’s popular support is dwindling: Residents who once viewed the Mahdi Army as champions of the poor became alienated by what they saw as its thuggish behavior.

A new brochure, obtained by The Wall Street Journal and confirmed by Mr. Sadr’s chief spokesman, Sheik Salah al-Obeidi, states that the Mahdi Army will now be guided by Shiite spirituality instead of anti-American militancy. The group will focus on education, religion and social justice, according to the brochure, which is aimed at Mr. Sadr’s followers. The brochure also states that it “is not allowed to use arms at all.”

Posters have been put up in some areas of Baghdad saying a new direction for the Mahdi Army will be announced at this Friday’s prayers.

[t]he militia that was once the biggest defender of poor Shiites in Iraq, the Mahdi Army, has been profoundly weakened in a number of neighborhoods across Baghdad, in an important, if tentative, milestone for stability in Iraq.

It is a remarkable change from years past, when the militia, led by the anti-American cleric Moktada al-Sadr, controlled a broad swath of Baghdad, including local governments and police forces. But its use of extortion and violence began alienating much of the Shiite population to the point that many quietly supported American military sweeps against the group.

Prime Minister Nuri Kamal al-Maliki struck another blow this spring, when he led a military operation against it in Baghdad and in several southern cities.

The shift, if it holds, would solidify a transfer of power from Mr. Sadr, who had lorded his once broad political support over the government, to Mr. Maliki, who is increasingly seen as a true national leader.

[t]he change is showing up in the lives of ordinary people. The price of cooking gas is less than a fifth of what it was when the militia controlled local gas stations, and kerosene for heating has also become much less expensive. In interviews, 17 Iraqis, including municipal officials, gas station workers and residents, described a pattern in which the militia’s control over the local economy and public services had ebbed. Merchants say they no longer have to pay protection money to militiamen. In some cases, employees with allegiances to the militia have been fired or transferred. Despite the militia’s weakened state, none of the Iraqis interviewed agreed to have their full names published for fear of retribution.

In a further sign of weakness, Shiite tribes in several neighborhoods are asking for compensation from militia members’ families for past wrongs.

…. Now neighborhoods are breathing more freely. A hairdresser in Ameen, a militia-controlled neighborhood in southeast Baghdad, said her clients no longer had to cover their faces when they left her house wearing makeup. Minibuses ferrying commuters in Sadr City are no longer required to play religious songs, said Abu Amjad, the civil servant, and now play songs about love, some even sung by women.

“They lost everything,” said the Sadr City government employee. “The Sadr movement has no power now. There is no militia control.”