US military officials have displayed a photograph of the body of the militant leader Abu Musab al-Zarqawi, who they say has been killed in an air strike in Iraq.

The US President, George W Bush, hailed the killing as a severe blow to the al-Qaeda group in the country and a significant victory in his war on terror.

Mr Bush said special forces had ‘delivered justice’ in killing al-Zarqawi and that his death would enable Iraq to ‘turn the tide’, though also cautioning that there were still tough days ahead.

The US and British governments have also welcomed the announcement of al-Zarqawi's death, which was made earlier today by the Iraqi Prime Minister, Nuri al-Maliki.

The US Ambassador to Iraq, Zalmay Khalilzad, said al-Zarqawi's death marked a 'great success’, but cautioned that it would not end violence in the country.

Al-Zarqawi, who was the most wanted insurgent in Iraq, has been blamed for the deaths of thousands of civilians there and was also accused of masterminding a spate of kidnappings and beheadings.

The US military said al-Zarqawi was killed when two US fighter jets dropped two 500 pound bombs on a target where he was thought to be holding a meeting near Baquba last night.

Several other people including a woman a child were also killed.

US Major General Bill Caldwell of the multi national force in Iraq said al-Zarqawi had been positively identified through finger-prints and other methods but that a DNA analysis would also be carried out.

General George Casey, who is the head of US-led forces in Iraq, said al-Zarqawi was killed 100 kilometres north of Baghdad.

He said Iraqi police were first on the scene and that one of al-Zarqawi's key lieutenants, spiritual advisor Sheikh Abdel Rahman, was also killed in the air strike on an isolated safe house.

Approval for top security posts

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. 

Mr Maliki apparently broke the deadlock by offering to present two Shia nominees for interior minister - Jawaad al-Bolani and Farouk al-Araji - in a bid to satisfy several leaders in his fractious alliance.

Parliamentary approval for any candidates Mr Maliki offers could help pull him out of a political crisis that has hurt efforts to impose a security crackdown against a Sunni Arab insurgency and sectarian violence raising fears of civil war.

The political stalemate that has prevented the prime minister from filling the top security posts since he took power on 20 May has been set against some of the most gruesome violence Iraq has seen since a 2003 US-led invasion toppled Saddam Hussein.

Police found a total of 17 severed heads in Diyala province north of Baghdad over the last few days and gunmen dragged 24 people, mostly students, out of their cars in the same area and shot them dead on Sunday.