The explosion, the latest to target occupation forces, was detonated as a convoy of US vehicles drove past.
A traffic policeman and another witness said the Americans were travelling in civilian clothes in two unmarked vehicles, which were both damaged by two simultaneous blasts at a main square in the city centre.
Iraqi police sealed off the area following the explosions, said
Assad Mohammed Hussein, 55.
"Two 101st Airborne Division (Air Assault) soldiers were killed
and two were wounded in an improvised explosive device attack," the division said in a statement.
The attack occurred at about 07:30 (04:30 GMT) in Mosul, which lies 370km north of Baghdad.
Early on Saturday, witnesses also reported an oil pipeline ablaze 15km north of Saddam Hussein's hometown of Tikrit.
Sabotage to pipelines and the decayed state of the infrastructure have hampered attempts to rehabilitate the shattered oil industry.
Day of resistance
Many people stayed off the streets, schools were closed, and traffic remained lighter than usual as rumours circulated of a "day of resistance".
It was unclear where the rumours originated but US authorities had asked their citizens to take extra precautions for today's six-month anniversary of President Bush's announcement that major combat had ended.
Many Baghdadis blamed the slowdown on leaflets they had heard about but not seen or alleged messages given by Saddam Hussein.
"...today's paralysis proves that the Americans are so far failing to protect and rebuild Iraq."
Abu Omar, businessman
"People are very tense, very jumpy, especially since the attacks are killing civilians and military, Iraqis, Americans and foreigners alike. Bomb scares are even reported in schools and mosques," said businessman Omar Ahmad.
"Saddam Hussein or others may want to hurt Iraq with bombings and rumours, but today's paralysis proves that the Americans are so far failing to protect and rebuild Iraq."
Overnight, four Iraqi policemen were wounded in two attacks against patrols, AFP reported police as saying.
"A pickup transporting a police patrol came under automatic
rifle fire around in the Al-Mujmwa area, north of Mosul," according to a policemen who asked not to be named.
"Three policemen were wounded and the attackers fled," he said.
A second attack occurred at 06:30 (03:30 GMT) on Saturday in the Beni Yunes area," the officer said, adding that one policeman was seriously wounded.
The number of American soldiers to have died in Iraq since President Bush declared the war to be over in May now exceeds the number of soldiers who were killed during the war to oust Saddam Hussein.
Bush is feeling the heat over his
Over 120 troops have now died in Iraq since the end of the war. According to Pentagon figures, 114 soldiers were killed in combat during war in the months of March and April.
More than 1500 soldiers have been wounded, and according to some press reports 6000 American servicemen have been evacuated from Iraq for medical reasons since the beginning of the war.
With the number of American casualties rising on an almost daily basis, President Bush is coming under increasing criticism from political commentators, sections of the American media and the public.
Last week former American secretary of state, Madeleine Albright said that she regretted American activity in Iraq, and that President Bush should have focused his ''war on terror'' on Afghanistan before tackling Iraq.
The Bush administration claims that the media is only concentrating on the bad news coming out of Iraq, and that the occupation coalition is winning its battle to bring peace and stability to the country.
However, with bomb attacks becoming more frequent and non governmental agencies pulling out and reducing their operations in the country, the White House is finding it difficult to convince its critics.