At least 60 people were killed and 76 wounded on Saturday when a car bomb struck the Baghdad Shi'ite district of Sadr City, ripping through a massive security crackdown in the Iraqi capital.
A Sunni woman MP was also kidnapped in north Baghdad along with eight of her bodyguards, a day after Al-Qaeda leader Osama bin Laden vowed the war would go on despite a peace plan launched by Prime Minister Nuri al-Maliki.
The vast Shi'ite neighbourhood of Sadr City, a stronghold of militiamen loyal to Shi'ite radical leader Moqtada Sadr, has been a repeated target for Sunni Arab insurgents amid mounting sectarian violence.
The massive car bomb went off as a police patrol passed through the district's Al-Ula market, which was packed with morning shoppers, an interior ministry official said.
Witnesses said the bomb was concealed in a pick-up truck loaded with vegetables and that the driver blew himself up.
But security officials said initial reports suggested the bomb had been detonated remotely.
Fearful residents were seen desperately searching through the mangled wreckage for missing loved ones. In a separate roadside bombing in southeast Baghdad, another three people were killed, officials said. Four bodies were also found around the city.
Taiseer Najeh Awad al-Mashhadani, an MP for the National Concord Front, the largest Sunni Arab bloc in the Iraqi Parliament, was seized in north Baghdad as she returned to the capital from the restive province of Diyala to the northeast, a political source said.
Her abduction came after the Shi'ite prime minister launched a national reconciliation plan aimed at wooing members of the disenchanted former elite away from the protracted insurgency and back into the political process.
The violence was a reminder of the precarious security situation in the capital despite a massive security clampdown that has seen tens of thousands of US and government troops patrolling the streets for the past few weeks.
Government figures for June recorded at least 1,009 Iraqi dead in insurgent attacks, only slightly down on the 1,055 killed around Iraq in May.
The prime minister's reconciliation plan includes proposals for an amnesty for at least some suspected rebels in a bid to stem the insurgency and mounting sectarian violence, and Maliki was due to begin a Gulf tour in oil-rich Saudi Arabia later on Saturday to seek regional support for the proposals.
But in a new audio-tape released on Friday, the Al-Qaeda leader vowed that the militant network's war in Iraq would go on despite the death in a US air raid last month of its Iraq frontman Abu Musab al-Zarqawi.
"The banner (of jihad, or holy war) has not fallen. It will be picked up by another lion of Islam," Bin Laden said in the recording, which was later authenticated by the US Central Intelligence Agency.
The US military was, meanwhile, facing fresh allegations of serious abuses against Iraqi civilians by its troops.
US officials announced on Friday that investigators were probing allegations that at least two US soldiers raped an Iraqi woman and then murdered her and three family members.
The criminal investigation was ordered by Major General James Thurman, a senior commander in Iraq, after two other soldiers said they had heard about -- but not witnessed -- the alleged killing in March in the Mahmudiyah area, south of Baghdad, an officer said in Washington.
"Allegations known so far are that two soldiers allegedly raped an Iraqi woman and then allegedly one of the soldiers may have killed four Iraqi civilians located within that residence -- the woman, two other adults and a child," the official said.
The soldiers belonged to the same 1st Battalion of the 502nd Infantry Regiment as Kristian Menchaca and Thomas Tucker, whose "severely traumatized" bodies were found on June 19 in the same restive region south of the capital.
The US military has come under the spotlight over a spate of abuses since the US-led invasion in March 2003, most notoriously the mistreatment of detainees at Abu Ghraib, which prompted a string of convictions.
The military is also investigating allegations that US marines killed 24 civilians, including 10 women and children, in the Euphrates valley town of Haditha last year after a bomb killed a comrade.
Two US soldiers were charged with voluntary manslaughter last week over the killing of an unarmed Iraqi civilian outside his home three months ago.
And this month, seven marines and a sailor were charged with premeditated murder, kidnapping and other offences over the killing of a reportedly handicapped Iraqi in the town of Hamdania near Baghdad in April.