At least three Iraqis and one American soldier have been killed in a blast outside a mosque in the Iraqi capital.
Many of the casualties were travelling aboard a small bus
The explosion occurred at 0930 (0630 GMT) near the al-Samarrai mosque in east Baghdad.
The US soldier killed was travelling in a three-vehicle US army convoy, which the attackers appear to have targeted.
The US administrator in Iraq, Paul Bremer, has warned that attacks may escalate in the coming months.
Up to 20 people were wounded in the blast, many aboard a passing minibus, and doctors appealed for blood donors.
A statement from the US military confirmed that the 22nd Signal Brigade soldier was killed when what it called an "improvised explosive device" went off as he travelled by in convoy.
Witnesses said at least three other soldiers in the convoy were wounded, but this has not been confirmed.
"Suddenly a bomb went off," one witness told Reuters news agency.
"I came running to rescue people. I saw one whose brain was blown off. We carried them and put them in a police car.
"The Americans were injured too, but most of the injured were Iraqis who were in a mini bus. The Americans came and took their injured and left."
The blast occurred in a busy shopping district of New Baghdad, to the east of the capital.
Sweet seller Ahmed Ali, 30, told AFP news agency the area had been crowded at the time.
"The place was packed and all the shops were open [with] people selling their wares on the pavement," he said.
US soldiers inspect the crater left by the 'improvised explosive'
The BBC's Tristana Moore, reporting from Baghdad, described a scene of horror after the explosion, with pieces of flesh and clothing strewn on the street.
There is increasing anger among ordinary Iraqis that innocent civilians are often the victims of such attacks, our correspondent says.
"It's a cowardly act," Mr Ali, the tradesman, told AFP. "They hurt one American but they killed and wounded far more Iraqis."
Mr Bremer warned such attacks on coalition forces were likely to increase as preparations for a new Iraqi government to be installed got underway.
"In the immediate phase ahead of us between now and the
end of June we will actually see an increase in attacks,
because the people who are against us now realize that
there's huge momentum behind both the economic and
political reconstruction of this country," Mr Bremer
told Associated Press Television News.
On 15 November the Iraqi Provisional Authority agreed to hasten the transfer of power to a partially elected government with full sovereign powers by the middle of next year.
"The dead-enders can see that all this, plus the fact that the Iraqi people will get their sovereignty back, spells trouble for them," Mr Bremer said.
Meanwhile in Baghdad, at least 500 people gathered on Friday to demonstrate against "terrorist" attacks - both against Iraqi civilians and occupying forces.
'We want peace'
The demonstrators, many of them children, carried flowers and placards denouncing attacks by insurgents.
One organiser, Sabih Hassan, said the children had all
"become orphans because of terrorism".
Children rallied for an end to violence
He said the march was against "all operations, including
those targeting Americans."
"Our children have a vital need for peace and security," he
Iraq Body Count - a research group that tracks the civilian death toll in Iraq - estimates an additional 1,500 Baghdad civilians died in the four months following the US-led invasion compared to normal death rates.
Over 200 foreign soldiers have died in Iraq since major combat was declared over on 1 May.