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.
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