Workers and soldiers tend to the wounded after the attack on the mess tent.
Photo: AP

A US company has become the first big contractor to pull out of Iraq because of worsening security as Americans reel from the deadliest attack on US forces in the country since the war began.

Contrack said it had ended its $US325 million contract to rebuild Iraq's transport system because of skyrocketing security costs. Its decision has deepened fears it is just the first of a flood of withdrawals that will cripple Iraqi reconstruction.

The US President, George Bush, condemned Tuesday's rebel attack on the US base south-west of Mosul and prayed for the families of the victims.

The explosion at Camp Marez, claimed by the Islamic jihadists Ansar al-Sunni, killed 22 people - 14 US soldiers, four US civilians and contractors and four Iraqi security forces - and wounded 72.

"Any time of the year is a time of sorrow and sadness when we lose ... life," Mr Bush said. "This time of year it's particularly sorrowful for the families as we head into the Christmas season. We pray for them."

Mr Bush, who was visiting wounded soldiers at an army hospital outside Washington when he heard the news, reaffirmed that US forces were on a vital mission for peace. "I'm confident democracy will prevail in Iraq."

However, the increasing ferocity of rebel attacks has added to Americans' fears that there is no end in sight to the job in Iraq.

It has also put pressure on Mr Bush and Iraq's interim Prime Minister, Iyad Allawi, to delay the national elections, set for January 30.

The attack took place when US soldiers at Camp Marez, a huge camp built round Mosul's airport, were sitting down to lunch.

A journalist who witnessed the explosion said: "A fireball enveloped the top of the tent, and pellet-sized shrapnel sprayed into the men."

US Army officials have not ruled out that the explosion was caused by a suicide bomber.

Ansar al-Sunni, which includes supporters of al-Qaeda and Kurdish rebels opposed to Washington, has been responsible for numerous attacks in Mosul and the beheading of foreign hostages, including the murders of 12 Nepalese contractors in August.

Mr Bush and his commanders in Iraq insist the elections will go ahead. General George Casey, the head of the Multinational Force in Iraq, said security issues would make the elections difficult in provinces where the insurgency is flourishing but said it was possible to have "credible elections".

Contrack's president, Karim Camel-Toueg, said Contrack had told the Government last month it was pulling out because it had "reached a point where our costs were getting to be prohibitive".

The Pentagon said the withdrawal was "not a terrible loss".

Contrack workers have been the victims of increasing assaults in recent months and gunmen attacked the firm's Baghdad headquarters in October. Earlier in the year rebels kidnapped a Contrack driver and dumped his body outside one of Contrack's construction sites with five bullet holes to the head. A note found on his body said "collaborator".

Halliburton, the largest contractor in Iraq and one of Contrack's partners in the transport contract, said seven of its employees and subcontractors were injured in the Mosul attack.

While a few companies and non-profit groups have pulled out of contracts in Iraq because of security concerns, Contrack's is by far the largest to be cancelled. There are fears that the pullout is the start of a flood and will discourage others from signing up.

One reconstruction expert, Michael O'Hanlon, said: "If this is how other private companies are thinking, it's a very bad potential warning." Paris did not pay a ransom for the release of two French journalists freed on Tuesday after four months held captive by militants in Iraq, the French Prime Minister, Jean-Pierre Raffarin, said on Wednesday.