An Islamic group led by the Jordanian-born militant Abu Musab Zarqawi posted a grisly video on the Internet Monday night showing what it said was the beheading of Eugene "Jack" Armstrong, an American contractor.

A U.S. official in Washington confirmed that a body believed to be Armstrong's had been recovered, news services reported.

The Islamic group said it intended to kill one of two other men kidnapped Thursday with Armstrong -- another American contractor and a British engineer -- within 24 hours unless the U.S. government met its demand to release all Muslim women from U.S. military jails in Iraq.

The nine-minute video shows Armstrong, a Michigan native, blindfolded and seated in an orange jumpsuit in front of five masked men, four armed with assault rifles. Behind the black-clad militants is the black-and-white banner of Zarqawi's militant group, Jamaat al-Tawhid and Jihad (Monotheism and Holy War), which has asserted responsibility for the beheadings of other hostages, including an American contractor, Nicholas Berg, in May and a South Korean driver, Kim Sun Il, in June.

After reading a statement, a man identified in the video as Zarqawi draws a knife from his belt and uses it to cut off Armstrong's head.

"The fate of the first infidel was cutting off the head before your eyes and ears," the speaker says. "You have a 24-hour opportunity. Abide by our demand in full and release all the Muslim women; otherwise the head of the other will follow this one."

The speaker addressed President Bush as "a dog" and said: "Now, you have people who love death just like you love life. Killing for the sake of God is their best wish, getting to your soldiers and allies are their happiest moments, and cutting the heads of the criminal infidels is implementing the orders of our lord."

The two other hostages are Jack Hensley, 48, of Marietta, Ga., and Briton Kenneth Bigley, 62. All three men were working in Iraq for Gulf Supplies and Commercial Services Co. of the United Arab Emirates.

The Islamic group had set a 48-hour deadline Saturday for the release of Muslim women held at two prisons: Abu Ghraib outside Baghdad and Camp Bucca, near Umm Qasr in southern Iraq. U.S. military officials say that only two women are being held in Iraq and that neither is confined at those prisons. The two women, Rihab Taha and Huda Salih Mahdi Ammash, allegedly were part of ousted president Saddam Hussein's program to develop biological weapons.

The gruesome slaying marked the latest turn in nine days of unrelenting violence in Iraq. In addition to an epidemic of kidnappings in the capital in recent months, more than 250 people have been killed and hundreds injured in suicide attacks, car bombings, roadside ambushes and kidnappings.

The United States has blamed Zarqawi, a former convict who reportedly converted to militant Islam while in prison, for much of the violence. A $25 million reward has been offered for information leading to his capture. For more than a week, U.S. fighter jets have made bombing runs in the restive city of Fallujah, where U.S. officials believe Zarqawi has his base of operations.

U.S. forces bombed a construction site in Fallujah around 2 p.m. Monday, according to a statement released by the U.S. military. The attack killed five Iraqis and injured seven, according to hospital officials and witnesses who disputed U.S. military claims that equipment at the site was used by insurgents to build fighting positions.

The statement released by the military said the attack was aimed at "heavy construction equipment used by Anti-Iraqi Forces (AIF) to build fortified fighting positions." The statement said intelligence reports indicated the airstrike "accurately targeted this equipment while protecting the lives of innocent civilians."

However, witnesses said the attack was in an area where workers were repairing a road leading to the Fallujah train station. The witnesses said the strike instantly killed a bulldozer operator, Ali Shihab, 27, and another laborer, Khalid Hamid, 22. Three others, including Iraqi journalist Firas Sami, were killed when they rushed to the scene and were hit by a second airstrike, the witnesses said.

"The people were working on a project for the municipality to rehabilitate the city before winter," said Karim Chali, who described himself as a Fallujah official. "We will sue the U.S. Army for this raid. They killed only civilians, innocent people."

Fallujah residents said U.S. forces dropped leaflets over the city offering a $10 million reward for information leading to Zarqawi's capture and others warning that the city would lose construction projects and much-needed jobs if Iraqi and foreign contractors were unable to enter the city.

"Decide now for the future of your families," the leaflets advised.

Earlier Monday, two leading Sunni Muslim clerics were assassinated within hours of each other in Baghdad in what appeared to signal an escalation of violence between Shiite and Sunni Muslim groups.

In another incident, insurgents killed a U.S. soldier from the 1st Infantry Division during an attack in the town of Sharqat, about 170 miles north of Baghdad, the military said in a statement. The soldier's name was withheld pending notification of his family.

Special correspondents Bassam Sebti and Omar Fekeiki contributed to this report.