The boldfaced part is a noun phrase with a reduced relative clause. It's another case of Whiz-deletion. The original was something like
- ... bands of pro-Hussein fighters who/which/that are still holding out.
where Whiz-deletion, as is its wont, deleted the boldfaced part -- the Wh-word subject of the relative clause, and the auxiliary be of the progressive construction that follows it. This is very normal behavior for English.
So, in order, the questions:
- Holding out is not a gerund; rather, it's what's left of the progressive construction after are got deleted, namely the present active participle (the -ing form) of the intransitive phrasal verb hold out.
- The subject of (are) holding out is who/which/that, which got deleted. This relative pronoun, however, is coreferential to its antecedent, pro-Hussein fighters, so it means the same. But the (deleted) relative pronoun is the real subject of the relative clause.
- This sentence is not different from a full, untransformed relative clause. It's just that English often deletes predictable syntactic markers to make things shorter; they mean the same and they work the same. Generally the full clauses are considered somewhat more formal, but not always.