A bomb exploded Monday on a busy commercial street near the main entrance to the U.S.-led occupation headquarters, killing two passengers in a car and injuring a third person, who escaped from the burning vehicle and was taken away in a car that had been following it.

The British Foreign Office in London identified the three as Britons. Witnesses said an Iraqi civilian was also injured in the blast, which occurred around 1:40 p.m.

The attack was the third deadly bombing in a week in the capital and the second just outside the fortified compound of the Coalition Provisional Authority, the U.S.-led occupation body.

A suicide bombing one week ago killed the president of the Iraqi Governing Council, Izzedin Salim. On Saturday, another suicide bomber struck outside the residence of Abdul-Jabbar Youssef Sheikhli, a deputy minister in Iraq's Interior Ministry, which is responsible for Iraqi police and security forces. Four civilians were killed in the blast, and Sheikhli and his wife were injured.

The bombings have occurred as occupation authorities struggle to bolster security in preparation for the handover of limited governing authority to Iraqis on June 30.

After the bombing on Monday, insurgents fired a series of mortar rounds around the city. No injuries were reported. But one soldier was killed and four others were injured in a rocket attack at a U.S. base north of Baghdad, the military said.

[On Tuesday, a suspected car bomb exploded outside a Baghdad hotel used by foreigners and located close to the Australian Embassy. At least two people were wounded, witnesses and police told the Reuters news agency.]

Army Brig. Gen. Mark Kimmitt, the military's top spokesman in Iraq, said Monday's attack in Baghdad appeared to involve a roadside bomb.

But witnesses said the bomb appeared to explode within the vehicle. If that proves accurate, it could signal a major security breach, particularly if the vehicle came from the headquarters or from another area controlled by occupation authorities. A roadside bomb would likewise signal a breach, because it would have been planted in a heavily patrolled section of the city and in a relatively open area.

"The U.S. soldiers are always watching the street because it's a very sensitive area," said Abdul Hussein Joda, 44, a trader. "It is very difficult for someone to plant" a roadside bomb.

At the scene of the blast on Karada Miriam Street, Col. Mike Murray, commander of the 1st Cavalry Division's 3rd Brigade, said the bomb could have been placed inside the vehicle. "It seemed to be a direct target," Murray said.

The blast blew out the windows of shops along the busy four-lane thoroughfare.

The vehicle was a heavy, armor-plated blue Toyota Land Cruiser of a type commonly used to transport foreign diplomats and contractors. The witnesses said that shortly after the blast, the vehicle was engulfed in flames and a man in blue jeans and a black flak jacket escaped from it, walked a few steps and collapsed.

They said a second vehicle, a white Land Cruiser, had reversed direction shortly after the explosion in an apparent attempt to flee the scene. But after the passenger collapsed, the second vehicle lurched forward and crossed the median, and someone jumped out to help the injured man, the witnesses said.

At the same time, Iraqis "ran to the car, trying to pull the passengers out," said Waleed Khalid Bayati, 38, a shop owner on the street. "The occupants of the second car started to fire in the air, trying to frighten the Iraqis so that they would move away from the car, and they did."

A walkie-talkie dropped by the injured man remained on the median several hours after the explosion. The charred vehicle sat smoldering as U.S. and British soldiers and members of the Iraqi Civil Defense Corps patrolled the street.

A bumper lay a few feet from the burning car. The bodies of the two dead passengers remained in the vehicle, covered in a nylon sheet, for several hours. By dusk, the vehicle and bodies had been removed, and a group of Iraqi children played with the bumper.

"The situation in Iraq, it's unexplainable," said Ameer Mahdi, 29, who owns a shop almost at the spot where the bomb went off. "We cannot stand it, all these explosions, all these problems and ethnic differences. Those people are also human beings."

Special correspondent Naseer Nouri contributed to this report.

U.S. troops inspect site of the blast near the main entrance to the occupation headquarters in Baghdad.