By Hugh Sykes
BBC News, Baghdad
US security firm Blackwater says it acted "lawfully and appropriately" after its convoy was "violently attacked by armed insurgents" in Baghdad earlier this week.
As many as 20,000 private security contractors are working in Iraq
Blackwater security guards then opened fire in a busy Baghdad square.
Eyewitnesses and recovering victims of the shooting - in which 11 Iraqi civilians died - say the Blackwater account is wrong.
Asked by the BBC if anyone shot at the convoy, an Iraqi policeman, speaking anonymously, answered unequivocally: "No."
Two men shot and wounded in the incident corroborated the policeman's account.
One, a Baghdad lawyer who had four bullets removed from his body, said: "I swear to God no-one shot at the security company."
Another man, who was wounded in the back and thigh, said: "They shot us randomly - no-one shot them."
The initial US embassy account of the incident stated that there had been an exchange of fire when the Blackwater men guarding a US diplomatic convoy reacted to a car bomb "in the proximity".
The policeman witness confirmed that there had been a car bomb. But he said it was 500m (1640ft) away from the convoy, and happened at least 20 minutes before the Blackwater convoy arrived at the intersection where they opened fire.
Iraqis are very angry about the incident, from people in the street to Prime Minister Nouri Maliki.
BLACKWATER USA FACTS
Founded in 1997 by a former US Navy Seal
Headquarters in North Carolina
One of at least 28 private security companies in Iraq
Employs 744 US citizens, 231 third-country nationals, and 12 Iraqis to protect US state department in Iraq
Provided protection for former CPA head Paul Bremer
Four employees killed by mob in Falluja in March 2004
Blackwater is especially widely resented, with one Iraqi saying that the company's employees are "much worse than the American military".
One Baghdad driver told me that security convoys like those operated by Blackwater had a "bad attitude", tended to panic when they were stuck in traffic jams, and sometimes kept moving by using their vehicles to push private cars out of the way - regardless of the damage they caused.
A government spokesman talked about "this flagrant assault", and Mr Maliki has pledged to stop Blackwater from working, describing the shooting as a "criminal act".
The initial response of the Iraqi interior ministry was to terminate Blackwater's licence to operate in Iraq, and to order its employees to leave the country.
But now Blackwater is merely suspended pending the outcome of the investigation into the incident.
The Americans have stopped any road travel by their diplomats, who are transported in Blackwater convoys when they leave the fortified Green Zone in Baghdad.
It is not clear how long this ban will last, with a US embassy spokesperson saying it will be reviewed on a daily basis.
There is now a joint Iraqi-US committee to look at the wider issues raised by the shooting - like the status of security companies in Iraq.
For example, it is not clear whether or not they still enjoy the immunity from prosecution provided by a regulation, known as Article 17 and dating back the Coalition Provisional Authority (CPA), which administered Iraq after the 2003 invasion.
But the core issue here will almost certainly not be resolved.
Eleven people were killed in al-Nisour Square on 16 September. Their deaths need to be explained.
In any normal country with a properly functioning legal system, the men who opened fire would appear in court, and face a jury - who would judge their guilt or innocence on the basis of the evidence.
Even in the military they would appear at a court martial, and witnesses would be called.
But security guards in Iraq are not civilians, and they are not soldiers.
So will they ever have to face justice?