At least 32 people have been killed in clashes between Sunni militants and al-Qaeda north of the Iraqi capital, Baghdad.
Up to 200 al-Qaeda fighters raided the villages of Sheikh Tamim and Ibrahim Yehia in Diyala province this morning, following a series of mortar attacks on the area.
In the clashes that followed, 22 local residents and 10 al-Qaeda militants were killed.
Police confirmed that attackers escaped with eight women and seven children as hostages.
The fighting, rare on such a large scale, underscores the growing split between Sunni militant groups and al-Qaeda that US-led forces have sought to exploit.
US President George W Bush, under pressure to show progress in the war, yesterday compared Iraq to Vietnam in urging the US public to be patient.
His administration has previously avoided such comparisons.
Meanwhile, there were no casualties from a blast which struck Baghdad's heavily fortified Green Zone this morning.
The blast occurred around 8.30am (5.30am Irish time).
The Green Zone houses the Iraqi parliament and several other foreign embassies including the British mission and the US embassy.