Militant leader Abu Musab al-Zarqawi has been killed, Iraqi Prime Minister Nouri Maliki has announced.
"We have eliminated Zarqawi," Mr Maliki said at a news conference in Baghdad, sparking sustained applause.
Zarqawi was considered the figurehead of the Sunni insurgency. He was leader of al-Qaeda in Iraq, blamed for killing thousands of Shias and US forces.
The US said he was killed in an air strike "approximately 8km (five miles) north of Baquba".
The head of US-led forces in Iraq, General George Casey, said the strike against an "isolated safe house" took place at 1815 (1415 GMT) on Wednesday.
"Iraqi police were first on the scene after the air strike," he said, followed shortly afterwards by coalition forces.
Jordanian-born Zarqawi was said to have been in a meeting with associates at the time. Several other people were reported to have been killed in the raid.
General Casey said Zarqawi's body was identified through fingerprints, facial recognition and known scars. He promised to give more details on the raid later on Thursday.
Reports say a statement on the internet attributed to an umbrella group for jihadi organisations including al-Qaeda in Iraq has confirmed Zarqawi's death.
Zarqawi was not a global mastermind like al-Qaeda leader Osama Bin Laden, says the BBC's security correspondent, Frank Gardner.
Instead he was a bloodthirsty and violent thug, who made enemies and several mistakes that might have contributed to his downfall.
These included ordering a triple suicide bombing against hotels in Amman, Jordan, last November, that killed 60 people, our correspondent says.
ABU MUSAB AL-ZARQAWI
US $25m bounty on head
Linked to Iraqi bombings, assassinations and beheadings
Merged Iraqi insurgent group with Bin Laden's al-Qaeda network in 2004
Emerged in Iraq as Tawhid and Jihad group chief
Linked to Casablanca and Istanbul blasts, in 2003
Foreign fighter against Soviet forces in Afghanistan in 1980s
Jordan petty criminal in youth
A Jordanian official told the Associated Press that Jordanian agents had contributed to the operation against Zarqawi.
The US ambassador to Iraq, Zalmay Khalilzad, said Zarqawi's death marked "a great success for Iraq and the global war on terror... Zarqawi was the godfather of sectarian killing and terror in Iraq".
But he cautioned that it would not end bloodshed in the country.
Violence continued on Thursday as 13 people were killed and 28 injured in a bomb on a Baghdad market, police said.
Zarqawi was accused of leading the rash of kidnappings and beheadings of foreign workers.
It has been suggested that he appeared personally on one video posted on the internet, cutting off the head of an American hostage.
It is thought US hostage Nick Berg may have been killed by Zarqawi
A video released in April showed Zarqawi shooting an automatic rifle and berating the US for its "arrogance". The video provided the most up-to-date picture of the fugitive.
Mr Maliki said intelligence from Iraqi people had helped track down Zarqawi, who had a $25m (£13m) price on his head - the same bounty as that offered by the US for Bin Laden.
"What happened today is a result of co-operation for which we have been asking from our masses and the citizens of our country," he said.
Shortly after the Zarqawi announcement, the Iraqi parliament approved Mr Maliki's nominees for the key posts of defence and interior ministers.
The two crucial roles had remained unfilled despite the formation of a coalition government last month.
Jordanian intelligence reportedly assisted the US-led operation
Zarqawi traced to isolated safe house approximately 8km north of Baquba, north east of Baghdad
US aircraft launched air strike at about 1815. The militant leader was reportedly holding a meeting with associates, including spiritual adviser Sheik Abd-al-Rahman
Several others reportedly killed in raid
Iraqi police were first on the scene, followed by troops from the Multi-National Division North
Zarqawi's identity confirmed by fingerprints, facial recognition and known scars