The US military says a series of raids conducted following the killing of Abu Musab al-Zarqawi has yielded a "treasure trove" of new information.
A spokesman said the death of the leader of al-Qaeda in Iraq freed investigators to pursue new targets.
Zarqawi was killed when US planes dropped two 500lb (230kg) bombs on a site near Baquba.
His death was welcomed by George W Bush and Tony Blair, though both warned it was unlikely to end the daily violence.
The US struck after receiving specific tip-offs from within Zarqawi's organisation, officials said. The militant's body was identified by fingerprints, tattoos and scars.
The news came shortly before the Iraqi parliament approved the key posts of defence and interior ministers.
The two crucial roles had remained unfilled despite the formation of a coalition government last month.
In the space of 24 hours, the Iraqi government was able to announce the capture of its arch nemesis and fill important cabinet positions with responsibility for security, says the BBC's Ian Pannell in Baghdad.
But he says Iraqis remain ambivalent about the prospects of the future, aware that Zarqawi's group is just one of many insurgent groups active in the country, and concerned that revenge attacks could follow.
Zarqawi's "safe house" about 8km (five miles) north of Baquba was struck at 1815 (1415 GMT) on Wednesday by F-16 jets, officials said.
Jordanian-born Zarqawi was said to have been in a meeting with associates at the time. At least five other people were killed in the raid, including spiritual adviser Sheikh Abd-al-Rahman and an unidentified woman and child.
Iraqi Prime Minister Nouri Maliki announced the news on Thursday, telling a news conference in Baghdad: "We have eliminated Zarqawi."
The news sparked sustained applause.
The strike was the "painstaking, deliberate result" of intelligence over "many weeks", US military spokesman Major General William Caldwell said.
He said that 17 simultaneous raids conducted in and around Baghdad following the strike had yielded "a treasure trove... of information and intelligence".
"And we had identified other targets we had previously not gone after, to allow us to continue staying focused on getting Zarqawi. But now that we have got him, it allows us now to go after all these other targets," he said.
A Jordanian government spokesman said Jordanian agents had contributed to the operation against Zarqawi.
Zarqawi was known for his particularly gruesome techniques, such as his trademark videotaped beheadings. His group was also blamed for many of the worst attacks on civilians, both inside Iraq and in neighbouring Jordan.
He was a bloodthirsty and violent thug - says the BBC's security correspondent, Frank Gardner - who made enemies and several mistakes that might have contributed to his downfall.
US President George W Bush described the news as a "severe blow to al-Qaeda" and "justice" for Zarqawi.
Zarqawi's death was an opportunity for the new government to "turn the tide", Mr Bush said.
British PM Tony Blair described it as "very good news", but both leaders said Zarqawi's death would not end violence.
19 Aug 2003: Bombing of UN office in Baghdad, 23 dead
29 Aug 2003: Bombing of Najaf shrine killing Shia cleric Muhammad Baqr Hakim, 85 dead
2 March 2004: Co-ordinated attack on Shia mosques during Ashoura ceremony, 181 dead
11 May 2004: Nick Berg beheaded, first of at least nine foreign hostages killed in 2004
14 Sept 2004: Car bomb targeting police recruits in Baghdad, 47 dead
19 Dec 2004: Car bombs in Najaf and Karbala, 60 dead
9 Nov 2005: Triple attack on hotels in Amman, 60 dead
"We should have no illusions. We know they will continue to kill, we know there are many, many obstacles to overcome," said Mr Blair.
On the streets of Baghdad, most people greeted the news.
"We consider this a great delight to the people because right must prevail," said one man.
"Thanks are due to God for ending our ordeal."
But a statement on an Islamist website, purportedly from al-Qaeda, said: "The death of our leaders ... only makes us more determined to continue the jihad."
However reports suggest Zarqawi's savage tactics had lost him the confidence of leading al-Qaeda figures, including Osama bin Laden's deputy Ayman al-Zawahiri, says the BBC's Jon Leyne.
Several sources close to the insurgency had suggested in the last few weeks that Zarqawi's role had already been downgraded.
The US state department says it is not yet clear who will receive the $25m bounty on Zarqawi's head.
The violence in Iraq continued on Thursday, with at least 35 people killed in a spate of bombings in Baghdad.
Jordanian intelligence reportedly assisted the US-led operation
Zarqawi traced to isolated safe house approximately 8km north of Baquba, north east of Baghdad
US aircraft launched air strike at about 1815. The militant leader was reportedly holding a meeting with associates, including spiritual adviser Sheikh Abd-al-Rahman, at time of raid
Several others were reportedly killed
Iraqi police were first on the scene, followed by troops from the Multi-National Division North
Zarqawi's identity confirmed by fingerprints, facial recognition and known scars