"Right now the death toll we believe is six to eight with at least 30 walking wounded who were treated at local hospitals," Lieutenant Colonel Peter Jones, the senior US officer at the scene, told reporters on Thursday outside the ruined building.
"It was an indiscriminate targeting of Iraqi individuals as they were going to celebrate New Year."
Jones said the blast was caused by a car bomb parked next to the restaurant.
The wounded included three foreign journalists with the Los Angeles Times. They are Tracy Wilkinson, the Times Rome bureau chief, correspondent Ann Simmons and Chris Kraul, who until recently headed the paper's Mexico City bureau.
"So far it is cuts and bruises but we don't have a complete report," Times Managing Editor Dean Baquet said in Los Angeles, adding that all three had been taken to a military hospital for treatment. He said Wilkinson had called the paper and was apparently in good spirits.
It is reported that the attempted bomber is still alive and a second suspect is in custody.
Braced for attacks
Earlier on Wednesday, the US-led occupation troops and Iraqi police said they were braced for strikes on Baghdad over the New Year.
An injured employee of Nabil's
restaurant stands at the scene
They said security had been bolstered in the capital.
"Police have taken strict security measures with the approach of the New Year and have put in place plans to confront possible terrorist attacks against Iraqis and foreigners," Baghdad police chief General Hasan Ali Ubaidi said.
He said "police are going to step up patrols, set up checkpoints and intensify operations across the city,", adding that more than 11,000 officers had been deployed.
"There is a high state of alert around the holidays," said Captain Aaron Hatock of the Baghdad-based 1st Armored Division.
Iraqi child killed
An Iraqi child was killed in Baghdad on Wednesday when a parked car exploded as a US military convoy passed.
"A child was killed in the explosion of a parked white Toyota on Palestine Avenue," in the centre of Baghdad, said Jasim Jabbar, of the Iraqi Civil Defence Force. No US soldiers were hurt.
"Police have taken strict security measures with the approach of the New Year and have put in place plans to confront possible terrorist attacks against Iraqis and foreigners"
General Hasan Ali Ubaidi
Baghdad police chief
"I heard an explosion and I saw a Humvee catch fire," said witness Salam Jabbur. US soldiers immediately sealed off the area.
The occupation soldiers also briefly seized the camera of an AFP photographer and arrested at least 10 people, whom they took away with their hands tied behind their backs.
Palestine Avenue, which is lined with shops, was the scene of
another roadside bombing on Christmas Day.