Military sources say warplanes and troops attacked positions across the border.
Mohammed Nuaman, a 36-year-old store owner who was wounded by shrapnel in the blast, said rescue efforts were complicated by a damaged bridge nearby.
The bridge, which spans the Diyala River, and connects the area with the rest of Baghdad, was hit by two bombings in May and was still under repair.
Nuaman said: “I heard a big explosion at the bus station area and another bomb went off about 30 seconds later, as I was heading to the area.”
“Locals rushed to the area and carried some wounded by their cars to the nearby Zafaraniyah hospital before the ambulances and police arrived about 15 minutes later.”
Meanwhile, US and Iraqi military commanders have said that an eight-month-old security crackdown in the Iraqi capital had succeeded in reducing the violence.
Lieutenant General Abboud Qanbar, the Iraqi in charge of the operation, said that overall attacks in Baghdad had decreased by 59 per cent and the number of Iraqi casualties by 77 per cent since the crackdown began in February.
He also announced that car bombs in the capital were down by 65 per cent and the number of people killed in bombings was down by 81 per cent.
Qanbar said: “All sectors in Baghdad have witnessed a decrease in terrorist activities.”
“This has brought life to normal in many parts of Baghdad.”