Occupation troops carrying out patrols first came under attack late on Tuesday night in al-Dura, southwest Baghdad, witnesses told our correspondent. Helicopters then attacked the area. There were no immediate reports of casualties.
A US military spokeswoman said: "We cannot comment on ongoing military operations. However, this is linked to Operation Iron Justice that involves explosion and aerial activity."
Operation Iron Justice, launched 1 December, is aimed at curbing corruption, stemming the alleged flow of money to anti-occupation fighters, and reducing criminal activity. Kidnappings, carjackings and other violence has swept the country, following the US-British March invasion and occupation.
Ambulances could be heard rushing to the scene in the early hours of Wednesday, reported our correspondent. US warplanes hovered over the capital.
It was the most intense military activity in the capital for weeks.
Earlier, in al-Amal neighbourhood, western Baghdad, a US tank speeding on the wrong side of the road crashed into a civilian car, leaving two Iraqi passengers dead and another two injured, said our correspondent.
More than nine months after the invasion of Iraq, instability continues to plague the country.
In the northern city of Kirkuk, Kurdish and Arab students clashed on Tuesday, leaving one Iraqi policeman injured. Ethnic tensions are on the rise in the oil-rich city, 225km north of Baghdad.
The policeman was trying to separate the fighting students and three Kurdish students and one Turkman were arrested following the clashes at Kirkuk's Technical College, according to police authorities.
Kurds are demanding Kirkuk be
part of an autonomous area
The fight erupted after Kurdish students refused to allow the Iraqi flag to be raised. The college's dean then asked students to lower all Kurdish, Turkmen and Iraqi flags, but the Kurdish students refused and students came to blows.
Iraq's Kurds are now boldly staking claim to Kirkuk, demanding it be made part of Iraqi Kurdistan.
About 10,000 Kurds demonstrated in Kirkuk on Monday, fuelling the mistrust among the ethnically diverse city's Arab and Turkmen population.
The demonstration coincided with a serious push by Kurdish members of the Interim Governing Council for the establishment of a federal Iraq, with Kurdish autonomy in the north, in advance of a constitutional convention promised for 2005.
The Kurdish leaders in the US-appointed Iraqi Governing Council are demanding a major expansion of Kurdish autonomy beyond three northern provinces, to include Tamim, home to Kirkuk, and parts of the ethnically mixed provinces of Nineveh and Diyala.
The Kurdish initiative prompted Turkish Foreign Minister Abdullah Gul to warn on Monday of any move "endangering the territorial integrity and political unity of Iraq."
Turkey fears autonomy for Iraq's Kurds could stir Ankara's own restive Kurdish population.
Ankara is fearful that advanced autonomy for the Kurds in northern Iraq could set an example for their restive cousins in adjoining southeast Turkey, where a bloody Kurdish rebellion for self-rule has only recently subsided.
Meanwhile, occupation forces continue to carry out sweeps across the country, detaining alleged resistance fighters.
In Kirkuk, troops arrested 16 residents of two Arab neighbourhoods.
Also on Tuesday US forces raided the headquarters of the Kurdish Islamist group Jamaa Islamiya, arresting 20 people suspected of having links to Ansar al-Islam. Washington accuses the latter group, which has only a few hundred members in northeastern Iraq, of being a "terrorist" organisation.
And in Falluja, US troops arrested 26 men suspected of anti-occupation activities. The detainees included two former generals and a special forces colonel from captured leader Saddam Hussein's government.