US governor of Iraq Paul Bremer has warned guerrillas will step up attacks to stop reconstruction efforts and says several hundred foreign militants have entered the country.
But Mr Bremer said US-led forces would not be driven out of Iraq by the militants because the price of failure was too high for the country itself and the Middle East.
"We're going to have increased attacks and increased terrorism because the terrorist can see the reconstruction dynamic is moving in our direction," said Mr Bremer, adding the foreign fighters were from Sudan, Syria, Yemen and Saudi Arabia.
"It will be more of a problem in the months ahead unless the intelligence gets better," he said.
Washington, which has lost 150 soldiers to hostile fire since President Bush declared major combat over on May 1st, blames the attacks on Saddam Hussein supporters and foreign fighters, including al-Qaeda members.
Mr Bremer was quoted as saying an Iraqi "special force" to counter rising militancy would probably not include former members of Saddam's intelligence services, but it was "not impossible".
Several loud explosions echoed across Baghdad on Sunday night and police said a mortar bomb hit a house in the city centre, but there were no immediate reports of casualties.
It appeared to be the fourth mortar attack by guerrillas in a week on the capital.
Guerrillas have grown increasingly bold in launching mortar attacks on the US-led administration on the west side of the Tigris River. No one has been killed, but several personnel in the US-led coalition have been wounded.
US warplanes bombed targets in Iraq on Sunday in air strikes that resumed last week for the first time in more than six months after the recent shooting down of three US helicopters.