By Mohammed Abbas and Khaled Farhan
NAJAF, Iraq (Reuters) - A car bomb killed four Iranian pilgrims near Iraq's holiest Shi'ite shrine on Saturday, a day before a parliamentary election that Sunni Islamist militants have vowed to wreck.
The blast gutted two tour buses parked near the Imam Ali shrine in Najaf, which draws millions of pilgrims from Iraq and Iran each year. Salim Nema, a Najaf health official, said the attack wounded 54 people, including 17 Iraqis and 37 Iranians.
At least 49 people have been killed in the last few days of campaigning, some of them soldiers and police voting early.
Sunday's election is a test for Iraq's young democracy, and will help decide whether the country can avoid relapsing into violence as U.S. forces prepare to withdraw by the end of 2011.
Prime Minister Nuri al-Maliki's bid to win a second term on a platform of providing services and security is under challenge from former Shi'ite partners and from a cross-sectarian, secularist group headed by former Prime Minister Iyad Allawi.
Insurgents have warned Iraqis, especially minority Sunni Arabs dominant under Saddam Hussein, to stay at home on Sunday. Sunni militants say the vote will solidify power for Shi'ite parties they see as hostile, heretical and unfit to rule.
No clear winner may emerge from the election, setting the scene for lengthy negotiations to form a coalition government and perhaps making Iraq vulnerable to renewed conflict.
United Nations Secretary-General Ban Ki-moon urged all Iraqis to vote. "The peaceful conduct of these elections is of paramount importance and should contribute to national reconciliation in Iraq," he said in a statement in New York.
The election is unfolding as global investors weigh opportunities in Iraq, which has the world's third largest oil reserves but is also desperate to diversify a shattered economy.
DROP IN VIOLENCE
Overall violence in Iraq has fallen sharply, despite some spectacular suicide bombings in Baghdad since August.
"Nationwide attacks remain at their lowest levels since before January 2004," said the chief U.S. military spokesman in Iraq, Major General Steve Lanza, in a statement.
He said attacks had dropped more than 90 percent since the United States ramped up its military presence in June 2007 -- one of several factors that combined to tamp down violence.
Some Sunni tribes and ex-insurgents turned against al Qaeda, an anti-U.S. Shi'ite militia stopped fighting, and sectarian carnage subsided after hundreds of thousands of people fled their homes in previously mixed neighborhoods.
Iraqi President Jalal Talabani acknowledged in a televised speech on Friday that his country's path to democracy had not been "paved with flowers," calling the election another test.
"We all must prove to ourselves and the whole world that we will not abandon this course," the veteran Kurdish leader said.
Campaigning officially ended on Friday. Millions of Iraqis will go to the polls from 7 a.m. on Sunday amid heavy security, including a vehicle ban aimed at preventing car bombings.
Around 600,000 people have already voted inside Iraq, mostly soldiers, police, detainees, hospital staff and patients, while another 1.4 million Iraqi refugees and expatriates were eligible to cast ballots early in 16 foreign countries, officials said.
The blast in Najaf, where authorities hope religious tourism will buttress rebuilding and growth, blew out windows of nearby hotels and left a meter-wide crater in the pavement. Iranian women visiting when the bomb went off wailed nearby.
"These are Saddamists who hope to prevent transparent democracy in Iraq. Even if all Iranians here today had been martyred, we would still come to Najaf," said Iranian pilgrim Ahmed Rafi.
Accustomed to bloodshed after seven years of violence, some Iraqis, such as shopkeeper Jabbar Radhi, struck a defiant tone.
"Nothing will shake us, not killings, not explosions."
(Reporting by Mohammed Abbas and Khaled Farhan; writing by Alistair Lyon; Editing by Charles Dick)