The Strategy Page has some interesting reading on the war of attrition going on in Fallujah and gives us some insight into the psychological effects of the Coalition's strategy on the insurgents:
October 14, 2004: Sunni Arabs in Iraq are becoming more agitated about being caught in a war pitting an alliance of Saddam supporters and Islamic radicals, against the majority Shia Arab and Kurds who want peace and prosperity, at any price. The Sunni Arabs are increasingly desperate to do something about their situation. Despite the threats from Saddam's old enforcers (almost all of them Sunni Arads), and the al Qaeda influenced Islamic radicals; tribal and religious leaders are suggesting that the Saddam hardliners and foreign Islamic radicals leave.
Leave Sunni Areas, leave Iraq, leave this life, it doesn't really matter. The Sunni Arabs see nothing but woe from the Saddam supporters and Islamic radicals. The American smart bombs hit Fallujah daily, while American and Iraqi troops continue to tighten the noose. The Saddam and Islamic gunmen regularly use civilians for cover, believing that, even when that tactic does not work, dead civilians make good propaganda for their cause. But most Sunni Arabs want nothing to do with seeing the Baath Party back in power, or having an Islamic Republic. The Sunni Arabs have been cowed by the terror, but not completely immobilized. Deals are being cut, to be finalized when Iraqi troops and police enter Sunni Arab towns under the shadow of American firepower. Will the Sunni Arab leaders remain with the Iraqi majority. Considering the alternative, they probably will.
October 13, 2004: Although the details are secret, American and Iraqi troops are on the offensive against Sunni Arab and terrorist gangs. Over a year of effort in building up an intelligence network among the population has paid off. Even in the Sunni Arab areas, many people are fed up with the lawlessness and violence created where the gangs operate. So information comes in about who is who and is doing what. This provides more, and higher quality, targets for raids...
There's more here.
UPDATE: Fox News reports that it looks as though an assault on Fallujah is imminent. See the report here.