Militants led by Washington's top foe in Iraq said they would kill an American and a Briton unless their demands were met, a day after they released footage showing them severing the head of another US hostage.

The video footage shows US contractor Eugene Armstrong sitting blindfolded on the floor in an orange jumpsuit, with black-clad hooded gunmen standing behind him. Armstrong rocks back and forth as a militant reads a statement yesterday.

Then one of the men grabs him and saws off his head with a knife.

Armstrong was seized in Baghdad on Thursday along with fellow American Jack Hensley and Briton Kenneth Bigley.

President Bush, in comments made before the release of the video on an Islamist Web site on Monday, said the United States would not negotiate and would stay on the offensive.

"They will behead people in order to shake our will. These people are ideologues of hatred," Bush told a campaign rally.

"You cannot negotiate with these people," he said. "We will stay on the offensive against them."

Negotiations to save the two hostages are made even more unlikely by the very nature of the demands by the Tawhid and Jihad group led by al-Qaeda ally Abu Musab al-Zarqawi.

The group said in the video of Armstrong's killing it would behead the other two hostages within 24 hours unless female inmates were released from the Abu Ghraib and Umm Qasr jails.

The US military says it does not hold any female prisoners in either of those two jails, and that only two women are in US detention in Iraq. The two, dubbed "Mrs Anthrax" and "Dr Germ" by US forces, are accused of working on Saddam Hussein's weapons programs and held at a secret high-security camp.

Washington says Zarqawi, a Jordanian, is its number one enemy in Iraq. His group has claimed responsibility for most of the bloodiest suicide attacks in Iraq since Saddam was overthrown. Zarqawi's group also beheaded US telecoms engineer Nicholas Berg in May and South Korean driver Kim Sun-il in June.

Eighteen Iraqi national guardsmen, threatened with death over the weekend in retaliation for the arrest of a top lieutenant of Shiite radical leader Moqtada Sadr, were freed Monday, a Sadr aide told AFP.

"All 18 have been freed at the request of Sayed Moqtada Sadr," said the hardline cleric's representative Naim al-Qaabi.

The national guardsmen were released at 5 pm (1100 GMT) in the radicals' Baghdad bastion of Sadr City, Qaabi said.