The U.S. military also said five American troops had died in fighting this week — four northeast of the capital and one in Baghdad.

Smoke billowed into the sky and fires burned on the ground after the thunderous explosion, which struck as the market in Karradah was packed with shoppers. The blast also burned nine cars and set a three-story building on fire, according to police and hospital officials who gave the casualty toll. The officials spoke on condition of anonymity because they were not authorized to disclose information.

It was the deadliest in a series of attacks nationwide that left at least 50 people dead.

The three U.S. Marines and a sailor died Tuesday in combat in Diyala province — the site of a major military operation against a Sunni insurgent stronghold, the military said Thursday. It announced earlier that a U.S. soldier was killed Wednesday during a gunbattle in southern Baghdad.

A Marine also died Sunday in a non-combat related incident in Anbar province, west of Baghdad, the military said separately.

At least 64 U.S. troops have died this month, a relatively low number compared with American death tolls of more than 100 for the previous three months, according to an Associated Press tally based on military statements.

Lt. Gen. Ray Odierno, the top day-to-day U.S. commander in Iraq, expressed cautious optimism over the lower number, with a week to go before the end of the month.

He said it appeared that casualties had increased as fresh U.S. forces expanded operations into militant strongholds as part of the 5-month-old security operation aimed at clamping off violence in the capital, but were going down as the Americans gained control of the areas.

"We've started to see a slow but gradual reduction in casualties, and it continues in July," he said at a news conference with Iraqi military commander Maj. Gen. Abboud Qanbar. "It's an initial positive sign, but I would argue we need a bit more time to make an assessment whether it's a true trend."

The death toll over the months of April, May and June was unusually high. The toll the preceding three months ranged from 81 to 83. In July 2006, the toll was 43.

'SIGNIFICANT IMPROVEMENT' SEEN BY ATTACKERS

Odierno also said the U.S. military has noted a "significant improvement" in the aim of attackers firing rockets and mortars into the heavily fortified Green Zone in the past three months.

Faris Hamza, a 42-year-old who works in a clothing store near the site of the blast in Baghdad, said the market was packed with shoppers. He described a scene of chaos with vendors helping to carry the wounded to hospitals and wounded women and children begging for help.

"The stalls were turned upside down because of the powerful explosion. There were many shoppers in the market and most of the store owners were looking forward to good sales but instead they had to close their shops and run away," he said, his shirt soaked with blood. "This violence is not only killing people, it is also starving them."

Also Thursday, U.S. Ambassador Ryan Crocker said increased U.S. troop strength had brought down violence, but it was impossible to rush political reconciliation or to predict when conditions would allow the United States to begin reducing its involvement.

With less than two months remaining before Crocker and Gen. David Petraeus, the U.S. commander in Iraq, are to report to Congress about progress in Iraq, the top diplomat also told the AP that reconciliation is going to be "a long, hard pull."

"The surge (increase of 30,000 American troops) has done very well indeed in making a difference in security conditions. There's no question, in the Anbar (province) and Baghdad area. But it's not a light switch. You don't just flip something up and everyone is reconciled," Crocker said in an interview.

STILL A WHILE BEFORE U.S. SCALEBACK

Pressed on when he thought U.S. troop levels could be reduced and other American involvement might be scaled back, Crocker said: "It's going to take longer than September."

The ambassador defended Prime Minister Nouri al-Maliki, who is under heavy U.S. pressure for his failure to shepherd benchmark legislation through parliament, as being "as frustrated as anybody else here or at home.

"He would like to get things done and as he points out, he understands the importance of the benchmarks for us. He'd like to get those done," Crocker said.

Meanwhile, the head of Britain's armed forces said British troops are likely to hand control of the southern city of Basra to local forces by the end of the year.

Air Chief Marshal Sir Jock Stirrup said a decision on exactly when responsibilities would be ceded to Iraq's police and military will be made in the coming months.

"We are very close to being able to hand over Basra in my judgment," Stirrup told BBC radio. "Just when we will reach that point is at the moment uncertain but I am fairly confident it'll be in the second half of the year."

About 5,500 British troops are in Iraq. That will go down by 500 once British forces vacate a base in central Basra later this summer.

Odierno said networks continue to smuggle powerful roadside bombs and mortars across the border from Iran despite Tehran's assertions that it supports stability in Iraq, though he offered no proof. Iran has denied the U.S. allegations about its activities in Iraq.

His remarks came two days after the U.S. and Iranian ambassadors to Iraq met in Baghdad and agreed to establish a security committee to jointly address the violence amid Washington's allegations that Tehran is fueling the violence by support Shiite militias. Odierno said the military also believes training of extremists is being conducted in Iran.

Iraqi government advisers said details of the committee had been worked out and the panel would have its first meeting on Saturday.

"One of the reasons why we're sitting down with the Iranian government ... is trying to solve some of these problems," Odierno said at a news conference in the Green Zone, which is home to the U.S. Embassy and the Iraqi government headquarters.

"We have seen in the last three months a significant improvement in the capability of mortarmen and rocketeers to provide accurate fires into the Green Zone and other places and we think this is directly related to training that is conducted in Iran," Odierno said. "So we continue to go after these networks with the Iraqi security forces."

Attacks against the sprawling complex along the Tigris River in the center of Baghdad have increased in recent months, adding to the concern over the safety of key Iraqi and international officials and thousands of U.S. soldiers and contractors who live and work there.

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