The explosion targeted a resturant in the neighbourhood of al-Jameiyat, near the centre of the mainly Shia city at around 9.00 pm (1700 GMT), said police official, Colonel Adnan al-Daraji.
At that time, the restaurant is usually filled with members of Iraqi security forces who gather there for dinner, Daraji added.
Earlier during the day, US-led forces claimed to have rescued American hostage Roy Hallums and an Iraqi citizen from an isolated farm house south of Baghdad.
"Hallums is in good condition and is receiving medical care," the military said on Wednesday.
Hallums was held in a farmhouse 25km south of Baghdad, the statement said, adding that rescuers were tipped to his whereabouts by an Iraqi detainee.
Hallums had been held since he was kidnapped at gunpoint from his office in the Mansour district of Baghdad on 1 November.
The identity of the freed Iraqi man was withheld until his family was notified, the statement said.
In a telephone interview aired by CNN, his ex-wife Susan Hallums said she had talked to her former husband by telephone.
"That's the best phone call I've ever gotten," she said.
"It was just very very early this morning, and he called and said that he was free, and I said that's just - our prayers were answered."
"It was just so wonderful to hear his voice and to hear my kids calling me and so happy."
Seized after gunbattle
Hallums, 57, was working for the Saudi Arabian Trading and Construction Co., supplying food to the Iraqi army, when he was seized along with two other foreigners after a gunbattle in the upscale Mansour neighborhood.
An Iraqi guard and one attacker were killed. A Filipino, a Nepalese and three Iraqis also were abducted but later freed.
In a January video released by his kidnappers, Hallums had a shaggy beard and a gun pointed at his head. The family sent fliers to Iraq that, in English and Arabic, offer a $40,000 reward for information leading to his safe release.
More than 200 foreigners have been
abducted since the invasion of Iraq
Susan Hallums and her husband of 30 years divorced a couple of years ago but remained good friends, she said. They have two daughters.
More than 200 foreigners have been abducted in Iraq since the war began in March 2003; more than 30 have been killed.
US guards killed
A roadside bomb has struck a convoy of American security guards in the southern city of Basra, killing four US contractors, a US embassy spokesman said.
Three of the contractors were killed instantly and a fourth died after British troops took him to a military hospital after the bombing on Wednesday in Basra, said Peter Mitchell, a US embassy spokesman in Baghdad.
"All four individuals worked for a private security firm supporting the regional US embassy office in Basra," Mitchell said in a statement.
Initial reports had indicated that the target of the attack was a British diplomatic convoy, but officials in London said no British personnel were involved.
The four contractors were killed
in a roadside bomb in Basra
An AP Television News videotape showed an overturned white sport-utility vehicle in a ravine next to a busy highway. Six British Army Land Rovers, with Iraqi police cars and two civilian ambulances were parked nearby. British soldiers were seen loading a body from the SUV into a military ambulance.
An estimated 20,000 civilians are believed to be working for private defence contractors in Iraq. More than 200 have died there, including 13 employed by US company Blackwater Security Consulting.
Southern Iraq, where about 8500 British troops are deployed, has been mostly calm since US and British forces occupied Iraq more than two years ago. However, violence has increased there in the past two months.
A man passes posters promoting
the constitution in Baghdad
On 16 July, a roadside bomb in Amarah killed three British soldiers and wounded two others. Two weeks later, two Britons, who worked for the security firm Control Risks Group, were killed when a roadside bomb exploded alongside a British diplomatic convoy in Basra.
Two British soldiers died on Monday in a roadside bombing west of Basra, bringing to 95 the number of fatalities British forces have suffered since the war began on 19 March 2003.
Baha al-Araji, deputy head of the Constitution Committee, said Iraq's new charter would be sent to the government printing house Thursday. He said it stood unchanged from the version sent to parliament by the drafting committee on 28 August after several deadlines were missed.
Vice President Ghazi al-Yawar (R)
urged Sunnis to vote
Iraqi President Jalal Talabani, a Kurd, said the version to be printed contained one revision, a bow to an Arab League demand that the constitution acknowledge the country's role as a founder of the pan-Arab organisation.
The document previously said Iraq was an Islamic country but omitted references to its Arab identity and its history as a key player in the Arab world. Arabs constitute more than three-fourths of Iraq's people.
Iraqis will vote on the charter in a 15 October referendum, but it is opposed by Sunni Arabs and many non-Sunni groups.
Five million copies of the constitution are to be distributed around the country with monthly food rations.
Vice President Ghazi Al-Yawar, a Sunni, said the constitution did not meet the Sunni's demands "100%" but encouraged its adoption. The task now, he said, was for Sunnis to engage in upcoming parliamentary elections to boost their representation in the legislature for a future effort to amend the charter.
The leaders spoke on Wednesday at a memorial for victims of the 31 August bridge stampede in which more than 900 people died trying to reach the Imam Mussa al-Kadhim mosque in northern Baghdad.