Insurgents have penetrated Baghdad's heavily fortified Green Zone to carry out two bomb attacks, at least one believed to be a suicide bombing.
It is rare for attacks on the Green Zone to cause casualties
Four Americans and six Iraqis are now known to have died, US officials said.
The Green Zone, where Iraqi government offices and US forces are based, comes under frequent mortar fire.
But these attacks - in what is supposed to be the safest place in Iraq - are the first major breach of security inside the zone, correspondents say.
In a statement posted on an Islamic website, the group led by Jordanian militant Abu Musab al-Zarqawi said it was behind the blasts, which it described as one of their "most successful operations."
The claim could not be independently verified.
"This cowardly act will not go unpunished," Iraq's national security adviser, Kasim Daoud, said hours after the blasts.
He said initial reports suggested the attacks were a "suicide operation".
The blasts happened at around midday at the GreenZone bazaar and cafe, locations popular with soldiers and civilians alike.
The cafe floor was littered with blood, glass, twisted metals and scattered body parts.
"People were screaming...People were stampeding, trying to get out," one man told the AFP news agency.
After hours of conflicting casualty figures, the State Department said four US nationals and six Iraqis had died, and around 20 people were injured.
The Green Zone, home to about 10,000 Iraqis and where the US and UK embassies are also located, is often targeted, but usually with missiles fired from outside.
However, a bomb was defused outside a popular restaurant in the zone earlier this month, prompting the British embassy to advise its staff to avoid all restaurants.
Some parts of Iraq see daily violence
Our correspondent says the Green Zone is supposed to be the one area of Baghdad safe to contractors - who know the rest of country as "the red zone" because travelling through it is deemed to be dangerous.
The Iraqi capital saw several other attacks on Thursday.
A US soldier was killed when his patrol came under fire in central Baghdad and another died when a roadside bomb exploded, the US military said.
Gunmen killed a woman journalist, Dina Hassan, and a judge in two separate incidents, an Iraqi government spokesman said
In other developments:
- Two senior Iraqi army officers were shot dead in Baquba, north of Baghdad.
- A video was posted on an Islamic website showing the beheading of a man said to be a Turkish hostage
- Two people were killed by a roadside bomb in the northern city of Mosul
- Iraqi President Ghazi al-Yawar says in an
interview that elections scheduled for January could be delayed because of security problems
The latest violence comes a day after interim Prime Minister Iyad Allawi said the city of Falluja would soon face a military onslaught unless it gives up foreign militants are believed to be in the city.
In protest at this threat, a delegation from Falluja said on Thursday it was suspending peace talks with the government as the demand to surrender Zarqawi and other foreigners was "impossible" as even the Americans had been unable to catch him.
Hospital officials in the city say five people were killed and at least 12 wounded in the latest American air raids on the city.