Some witnesses said the children, all aged around 12, were shot dead by US troops who had opened fire randomly after the blast on Canal Street in eastern Baghdad. At least five other people were wounded.

The children had left their nearby school to look at the burning Humvee, the witnesses said. Children and some passersby were "celebrating" the attack near the vehicle when the deadly shots were fired.

The US military had no immediate word on the incident.

"I saw a child lying on the street with a bullet hole in his neck and another in his side," said a driver who witnessed the incident. "He had his schoolbag on his back. Some 15 minutes later his relatives came and took his body away."

Australian Prime Minister John Howard flew into Baghdad yesterday, just hours after suicide bombers took their war to the sea for the first time with an unsuccessful attack on Iraq's crucial offshore oil terminal.

Howard, a strong US ally, was scheduled to spend six hours at Baghdad's heavily guarded airport, where Australian troops are involved in air traffic control, to mark Anzac Day, the day Australia and New Zealand honor their war dead.

Australian television reported automatic gunfire could be heard in the distance as Howard, who, like President Bush, faces elections later this year, attended the dawn service.

Suicide boat struck Iraq's main southern oil terminal overnight, halting the bulk of the country's crude exports for at least two days in a blow to an industry expected to drive Iraq's post-war reconstruction.

Two US sailors were killed in the operation to stop three boats laden with explosives from wreaking widespread damage on key Iraqi oil facilities in attacks similar to previous waterborne bombings off Yemen blamed on Osama bin Laden's al-Qaeda network.

Crude oil exports from the main Al-Basra Oil Terminal were stopped because of a power cut and they would take "at least two days" to resume, Dominic d'Angelo, spokesman for the US-led coalition in Basra, told AFP Sunday.

The two sailors were killed as an eight-strong interception team prepared to board a boat as it neared the exclusion zone around the oil facility at Khor Al-Amaya.

"As the eight-member boarding team approached the dhow in a rigid hull inflatable boat (RHIB), the dhow exploded, flipping the RHIB and throwing the crew into the water, killing two and wounding four," the US Navy said in a statement issued in Bahrain, where the US Fifth Fleet is based.

In another incident, at least four Iraqis were killed and 12 injured yesterday in a series of rocket attacks on a hotel, a police building, a local television station and hospital in the northern city of Mosul.

A rocket hit the parking lot of the Ashoor hotel in the centre of the city at about 10:10am (0610 GMT), according to Major Hisham Ahmed.

He said the parking lot attendant was killed as well as an operator of the generator supplying power to the hotel, which suffered external damage.

On Saturday, US Marines killed around 30 Iraqi insurgents in a firefight near the flashpoint town of Falluja, Colonel John Coleman said Saturday.

Marines spotted a small group of armed men, one with a mortar, and shot at them near a small village on the banks of the Euphrates, he said at the US base of Camp Falluja, just outside the town.

The insurgents were joined by about 30 others and the Marines called in air support, Coleman, the chief of staff of the Marine Expeditionary Force, told reporters.

He said all the insurgents were killed in the action, but gave no other details.