The Australian soldiers injured in the attack are expected to make a full recovery, with two already returned to duty and a third undergoing surgery for serious facial injuries.
Witnesses say the blast was caused by a suicide car bomb which hit a convoy of three Australian light-armoured vehicles.
A United States Army Major Scott Stanger, who saw the attack, says it clearly targeted Australian forces.
“It was a car bomb. It was travelling south to north and it was an Iraqi taxi cab and it parked on the side of the road there, waited for a target which was obviously the Australians and they blew up.
“When they blew the vehicle up, they killed two Iraqis which is a shame because it was just two Iraqi civilians who were sitting over there.”
But the Commander of Australian forces in the Middle East Brigadier Peter Hutchinson says the blast doesn’t appear to have been caused by suicide bombers.
He says it is also unclear whether Australians were the main target.
He says the route to the Green Zone in central Baghdad where the convoy was attacked is one used by many Coalition forces.
The Defence Minister Robert Hill says he is not sure whether Australian forces were specifically targeted.
A group loyal to al-Qaeda linked militant Abu Musab Al Zarqawi has claimed to have specifically targeted Australian troops in the attack but is still to be verified.
Three Iraqis were killed, and three Australian soldiers were injured when the car bomb exploded near a convoy of three Australian light-armoured vehicles.
Senator Hill says an investigation should determine if the Australian forces were the subject of the attack.