Hot on the heels of Iceland's critical withdrawal from the Coalition of the Willing, it seems that the Iraqi government is beginning to lose patience with having a 20,000 to 30,000 strong collection of foreign mercenaries on their soil.

After a firefight on Sunday in which Blackwater security contractors allegedly killed eight civilians, the Iraqi Interior Ministry revoked the company's license - banning the company from working in the country - and commenced a criminal investigation into the incident.

The Iraqi government has also vowed to prosecute the contractors involved - a decision likely to provoke tensions with the United States, not only because Blackwater USA is notoriously well-connected, but also because the Coalition Provisional Authority, while in power, decreed that both American soldiers and mercenaries would be immunized from Iraqi prosecution. That decree, Order 17, has apparently never been formally overturned.

Though details of the shooting remain unclear as of this writing, the Iraqis have characterized the incident as a "vicious assault" and "a big crime," while the State Department has issued a singularly lackluster denial.

There was a firefight, said Sean McCormack, the principal State Department spokesman. We believe some innocent life was lost. Nobody wants to see that. But I cant tell you who was responsible for that.

Secretary of State Condoleeza Rice has promised American assistance and support in dealing with the matter.

Blackwater, meanwhile, is less shy about claiming innocence of any wrongdoing.

The civilians reportedly fired upon by Blackwater professionals were in fact armed enemies, and Blackwater personnel returned defensive fire, said Anne Tyrrell, a company spokeswoman, in an e-mail message. Blackwater professionals heroically defended American lives in a war zone.

Heroic or not, the scene was certainly confused. Initial reports indicated that a State Department in Nisour Square had come under fire, but witnesses claim that a pair of car bombs provoked the mercenaries to start shooting "in response" and call in air support.

"The car bomb was in proximity to the place where State Department personnel were meeting, and that was the reason why Blackwater responded to the incident, he said on a conference call for reporters in Baghdad on Monday afternoon.

Mirenbe Nantongo, an embassy spokeswoman, said directly, Our people were reacting to a car bombing.

But typical for Iraq, confusion prevailed over who was firing at whom. Iraqis who had been at the scene said they saw helicopters, though American officials did not speak of air power. Ms. Tyrrell said helicopters came but did not shoot.

A grocery shop owner, Abu Muhammad, reported seeing two helicopters firing down into the area, around the time of the bombing. I was hearing the shooting continuing every now and then, for about 15 minutes, he said, adding that the gunfire sounded low and fast, different from the sound of an AK-47 firing.

It's hard to blame a man for shooting some rounds out of his gun after somebody's just tried to blow him up. Nevertheless, it's not clear at this point whether the Blackwater fire was at any point returned.

Regardless, the event has underscored some longstanding criticisms of mercenaries in Iraq.

The deaths on Sunday that were linked to Blackwater have struck a nerve with Iraqis, who say that private security companies are often quick to shoot and are rarely held responsible for their actions.

Moreover, the Iraqi government has used the incident to initiate a thorough review of all mercenary companies currently serving in Iraq, not just Blackwater, emphasizing the growing gap between the political interests of Washington and Baghdad.