Iraq and the US have pledged a "fair and transparent" investigation into a gunfight involving a private security firm that left eight civilians dead.
As many as 20,000 private security contractors are working in Iraq
Iraq has banned North Carolina-based Blackwater USA from the country after the shoot-out in Baghdad on Sunday.
US Secretary of State Condoleezza Rice has telephoned Iraqi Prime Minister Nouri Maliki about the incident.
The two have agreed to investigate and hold any wrongdoers accountable, according to Mr Maliki's spokesman.
All Blackwater personnel have been told to leave Iraq immediately, with the exception of the men involved in the incident.
They will have to remain in the country and stand trial, the Iraqi interior ministry said.
The convoy carrying officials from the US State Department came under attack at about 1230 local time on Sunday as it passed through Nisoor Square in the predominantly Sunni neighbourhood of Mansour.
The Blackwater security guards "opened fire randomly at citizens" after mortars landed near their vehicles, killing eight people and wounding 13 others, interior ministry officials said.
Most of the dead and wounded were bystanders, the officials added. One of those killed was a policeman.
BLACKWATER USA FACTS
Founded in 1997 by a former US Navy SEAL
Headquarters in North Carolina
One of at least 28 Private Security Companies in Iraq
Employs 744 US citizens, 231 third-country nationals, and 12 Iraqis to protect US state department in Iraq (May 2007)
Provided protection for former CPA head Paul Bremer
Four employees killed by mob in Falluja in March 2004
Personnel have no combat immunity under international law if they engage in hostilities
A spokesman for the US State Department told the AFP news agency that during her phone call to Mr Maliki, Ms Rice had "reiterated that the United States does everything it can to avoid such loss of life in contrast to the enemies of the Iraqi people who deliberately target civilians".
A Blackwater official was quoted as telling Time magazine's online edition that "the convoy was violently attacked by armed insurgents, not civilians, and our people did their job, they fired back to defend human life".
Thousands of private security guards are employed in Iraq.
They are often heavily armed, but critics say some lack proper training and are accountable only to their employers.
Blackwater is reported to have a contract worth $300m (£150m) with the state department to protect its diplomatic staff and equipment in Iraq.
The firm's personnel have no combat immunity under international law if they engage in hostilities.
Sunday's violence followed the publication of a survey of Iraqis by a UK-based polling agency that suggested up to 1.2m people might have died because of the conflict in Iraq.