  Thin films of silver containing 0.3 - 1.5 at % Fe have been prepared by vapor
co-deposition. Depending on substrate temperature and iron concentration we
could systematically follow the formation of nanometer size clusters of iron
from initially dilute iron monomers. samples were characterized via X-ray
diffraction, resistivity and M\"{o}ssbauer spectroscopic measurements. The
magnetic behavior derived from M\"{o}ssbauer data can be best described with an
ensemble of ferromagnetic mono-domain particles. The magnetic freezing observed
at low temperatures, is controlled via the inter-particle interactions mediated
via conduction electron polarization, i.e. RKKY interaction. The interaction of
the cluster magnetic moments with the conduction electron sea is best
quantified by the electrical resistivity data. For all studied concentrations
we find a non-monotonic variation with temperature which can be understood by
competing shielding of the cluster moments by conduction electron spin
scattering due to Kondo effect and the magnetic coupling.
