BAGHDAD (CBS News/CBSDC/AP) — Islamic militants attacked Iraq’s largest oil refinery late Tuesday, but were repelled by Iraqi security forces after an overnight battle, Iraqi officials said Wednesday.

The al Qaeda splinter group known as the Islamic State of Iraq and Syria (ISIS) began their attack late Tuesday night, but fighting continued into Wednesday morning. There were unconfirmed reports that the militants had managed to gain control of much of the refinery compound, but in messages posted on their Facebook page, the Iraqi Special Operations force vehemently denied the claims.

Iraqi special forces, backed up by air support, destroyed an ISIS convoy and gunned down three ISIS snipers during a failed attempt by the group to break into the Baiji refinery, according to the special operations force, part of Iraq’s Interior Ministry which is in charge of security across the country.

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Chief military spokesman, Lt. Gen. Qassim al-Moussawi, later said government forces had repelled the attack and that 40 attackers were killed in fighting.

Operations at the sprawling complex were halted and its foreign staff evacuated on Tuesday shut down due to the threat.

In a televised address on Wednesday, meanwhile, Prime Minister Nouri al-Maliki said his government had regained the initiative after the “shock” defeat of its army and security forces by ISIS in the country’s north.

“We were able to contain the strike and arrest deterioration. … We have now started our counteroffensive, regaining the initiative and striking back,” al-Maliki said.

Al-Maliki’s upbeat assessment also came as the military claimed its forces had regained parts of the strategic city of Tal Afar near the Syrian border, which Islamic State fighters captured Monday. Its closeness to the Syrian border strengthens the Islamic State’s plan to carve out an “Islamic emirate” stretching across the Iraq-Syria border.

The refinery in Beiji processes Iraqi oil into gasoline and other products for domestic consumption, and officials have said there are sufficient petroleum products stockpiled to last the nation weeks, but the attack on the key oil infrastructure highlights the threat posed by ISIS to the north and west of Baghdad.

CBS News correspondent Clarissa Ward says that if ISIS were able to seize the refinery, or halt operations there for a long period of time, it could mean massive lines for gas and power outages in parts of Iraq already gripped by chaos.

The Sunni Muslim militants of ISIS overran two major Iraqi cities last week, facing little opposition from government security forces who simply fled in many cases to safer areas in the north.

Mosul and Tikrit are still controlled by ISIS and allied tribal militias, and many of the residents in the cities — which sit in Iraq’s central Sunni heartland — have welcomed the fighters. The Shiite-led government of al-Maliki in Baghdad is deeply unpopular in many Sunni areas of Iraq.

The violence of the past week and a half is indisputably sectarian, and ISIS was able to push its bloody bombing campaign into the heart of Baghdad on Tuesday, where a blast killed at least 12 people as it tore through a crowded market in the Shiite stronghold of Sadr City.

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Ward says the streets of Baghdad are full of security forces Wednesday morning, and thousands of Shiites have volunteered to join sectarian militias, holding big rallies daily in the capital. Some of the fighters told CBS News they consider it a sacred duty to defend their city from the ISIS militants.

But Gen. Saad Ma’an, a spokesman for Iraq’s Interior Ministry, which is in charge of national security, denied to Ward that Iraq is in the midst of a sectarian civil war. He said arming volunteer Shiite militias was a dangerous idea.

“We don’t have militias,” insisted Ma’an.

“You do have militias, I’ve seen them with my own eyes,” challenged Ward, who then quickly listed three of the groups which CBS News has seen mustering civilian fighters.

“We have tribes,” countered Ma’an, before attempting to play down the sectarian roots of the current bloodshed. “We must liberate Iraq… Iraq for Sunni and for Shiite and for Christian.”

But in the first ominous sign that Shiites were launching reprisal attacks against Sunnis in Iraq, nearly four dozen Sunni detainees were gunned down at a jail north of Baghdad on Tuesday by Shiite militiamen defending the police station which came under attack by ISIS fighters.

President Barack Obama wants to send a small contingent of U.S. Special Forces into Iraq for the first time since the U.S. military pulled out of the country to help train and advise the domestic forces.

A White House official told CBS News Wednesday morning that Obama has not made a final decision on whether to conduct airstrikes in Iraq, but did not deny reports that such action was no longer the focus of the administration’s strategy for the immediate future.

“The President has not made a decision,” the official told CBS News in a written statement. “At this stage, the only thing that remains ruled out is more U.S. troops in a combat role.”

“The solution that is needed is an Iraqi one,” added the official, “any U.S. military options are in support of that strategy.”

CBS News chief White House correspondent Major Garrett says that while Obama has made it clear he will not put boots on the ground in Iraq for combat, he now believes the special forces are needed in the country to develop better intelligence on the Sunni insurgents, should air strikes be ordered.

The U.S. military has positioned significant assets in the Persian Gulf, including attack helicopters, jet fighters and battle ships with missiles easily capable of hitting targets in Iraq.

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