US troops have established a presence in the heart of Baghdad after raiding Saddam Hussein's main palace and battling Iraqi forces.
US troops processed Iraqi POWs in the main palace
The Pentagon described the assault as a "show of force" rather than the start of a full occupation - an operation aimed at convincing Iraqis that further resistance is futile.
The BBC's Andrew Gilligan in Baghdad says the US presence is confined to a two-square-mile enclave in a loop of the Tigris river, including the palace and the famous al-Rashid Hotel.
Early on Tuesday, explosions and machinegun fire were heard from around the palace by a Reuters reporter.
He said it seemed as if Iraqi forces were bombarding the compound.
The US military says 65 tanks and 40 Bradley fighting vehicles took part in the incursion, which sent Iraqi soldiers fleeing along the river bank.
US President George W Bush is discussing the latest developments in Iraq with UK Prime Minister Tony Blair at a summit in Northern Ireland.
South of Baghdad, the US military says initial field tests on chemicals found near the city of Karbala suggest the possible presence of the nerve agents sarin and tabun, as well as mustard gas.
The Pentagon has cautioned that these are only preliminary results and further laboratory tests will be conducted. Defence Secretary Donald Rumsfeld said that could take days.
There have already been a series of false alarms about a "smoking gun" since the invasion of Iraq began and coalition forces started searching for weapons of mass destruction.
In other military developments:
- UK officials say they believe the top Iraqi commander in the south, Ali Hassan al-Majid - known as Chemical Ali - was killed when his Basra home was bombed at the weekend
- An Iraqi rocket attack on a US command centre south of Baghdad leaves two soldiers and two journalists dead and several other soldiers wounded, according to US military sources
- At least two US marines are killed and many are injured as they fight to capture bridges in the south-east of Baghdad
- UK troops push into the old city of Basra without an armoured escort as they establish control over Iraq's second city
Rival Iraqi groups - believed to be pro-Saddam Hussein militia and local opponents - exchange machine-gun and mortar fire in the southern town of Nasiriya
- The northern city of Mosul comes under heavy bombardment
Donald Rumsfeld says the United States is unlikely to declare an early victory in Iraq, despite recent gains.
As the US military operation in Baghdad continued, Iraqi television showed a meeting chaired by Saddam Hussein at an undisclosed location.
Alongside the Iraqi leader sat his son Qusay, Deputy Prime Minister Tariq Aziz and Vice-President Taha Yassin Ramadan.
US forces entered two palaces in Baghdad
Earlier, Iraqi Information Minister Mohammed Saeed Sahhaf denied that Baghdad's defenders had lost ground, claiming that Iraqi forces had "slaughtered" columns of US troops.
"Don't believe these invaders and these liars. There are none of their troops in Baghdad," the minister told reporters at an impromptu outdoor press conference.
The Americans say they have encircled Baghdad and control access to all major roads.
The BBC's Andrew Gilligan says the US incursion was a successful attempt to prove that the US has the freedom to move anywhere in the capital.
Iraqi troops fled the scene
US troops parked their tanks at the front door of the main palace, filmed its lavish interior and walked through its grounds, while exchanging fire with Iraqi fighters.
Television pictures from inside the palace showed US soldiers amidst ornate furniture covered with grime following the fighting in the city.
No figures on Iraqi casualties are available.
But the Red Cross says hospitals in Baghdad are inundated with new patients, are running out of medicine and are short of water and electricity.
The AFP news agency reports that a missile hit Baghdad's al-Mansour neighbourhood, killing at least nine civilians.
In Baghdad's suburbs, US troops are still being harassed by sporadic resistance, the BBC's Gavin Hewitt reports.
Some American units were asked not to destroy any more Iraqi equipment, he says, as the commanders see a viable Iraqi army as important in the future.
In other developments:
- Two Polish journalists are reported missing - a colleague says they were detained by armed Iraqis at a checkpoint in southern Iraq
- US military officials say commander of US-led invasion force, General Tommy Franks, has visited troops at three locations in Iraq
- UN Secretary-General Kofi Annan says he expects the UN to play an important role in post-war Iraq.