Zarqawi himself (centre) is believed to have killed the hostage
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An Islamist website has published a video showing the killing of a US hostage in Iraq.
A group said to be led by suspected al-Qaeda leader, Abu Musab al-Zarqawi, said it had beheaded the hostage.
The Tawhid and Jihad group, holding two Americans and a Briton, had set a 48-hour deadline for Iraqi women prisoners to be freed which had expired.
The US recovered the body of the man shown on the tape, naming him as Eugene Armstrong.
"His body has been recovered and it's been identified," a US official told Reuters news agency on condition of anonymity.
The nine-minute long video tape has not been verified.
Further threat
The tape showed five militants dressed in black behind the sobbing man, blindfolded and wearing an orange jumpsuit.
After reading a statement, the man in the centre, believed to be Mr Zarqawi himself, appeared to pull what looked like a knife and cut the man's throat.
The speaker warned that the next hostage would die in 24 hours unless their demands were met.
The militants said earlier they would kill the hostages unless Iraqi women were freed from two Iraqi prisons in Abu Ghraib and Umm Qasr.
The voice of the man reading the statement is said to sound like past recordings of Mr Zarqawi, correspondents say.
Eugene Armstrong was kidnapped along with another American citizen, Jack Hensley, and Britain's Kenneth Bigley from their house in central Baghdad on Thursday.
In response to the demands, Washington said it had only two women detainees in custody in Iraq - biologists accused of developing weapons.
'Standing firm'
The families of the three hostages earlier pleaded for them to be spared.
More than 100 foreigners have been abducted by insurgents in Iraq over the past 17 months, in a bid to destabilise the US-backed interim government and drive foreign troops out of the country.
British Prime Minister Tony Blair said the UK will "stand firm" in the face of the insecurity and bloodshed plaguing Iraq.
Mr Blair acknowledged that the Iraqi situation was "terrible", but he said there was a clear choice to make between right and wrong.