'Help Me! I'm a Hostage.'

Tipped off to "suspicious activity" around a house in the restive, Sunni-dominated Ghazaliya area of Baghdad, Iraqi soldiers from the army's Second Battalion, First Armored Brigade decided to mount a cordon-and-search operation Wednesday morning. They had no idea the routine raid would morph into a sensational hostage rescue, brigade commander Brig. Gen. Jaleel Khalaf Shewi tells NEWSWEEK.

When a squad of soldiers knocked on the door, an Iraqi man answered--and panicked when he saw the soldiers' uniforms, according to Jaleel. Warily, some soldiers took up positions around the house while others entered the building. Inside, they saw several Iraqis--and an older man with a shaved head lying prone, his body entirely covered with a blanket.

"Who's this?" asked one soldier. "He's my father, and he's sick," answered one of the Iraqi men, according to Jaleel's account. But when the soldier pulled back the blanket, he saw that the older man, clad in a dun-colored traditional Arab robe called a dishdasha, had his hands bound together with rope.

Suddenly the "father" began babbling in English. "I'm Australian! Help me! I'm a hostage!" shouted Douglas Wood, the 64-year-old contractor and California resident whose kidnapping in late April made international headlines. At that point, shooting erupted in and around the building, Jaleel says. "An insurgent on the roof shot down at the soldiers, and a man inside the room also opened fire. But they were shooting blindly," says Jaleel.

The squad of soldiers, numbering about a dozen, subdued the kidnappers. At least two suspects were detained, while Wood and an Iraqi hostage, contractor Saed Rasul, were freed. A number of AK-47s and other firearms were collected. Given the close quarters, "It was a miracle no one was hurt in the shooting," Jaleel says. "Our soldiers were trained well by their American colleagues."

Wood's dramatic rescue was a much-needed morale booster for the embattled Iraqi armed forces. But elsewhere in the country Iraqi security personnel were taking hits. In Khalis, 25 miles north of Baghdad, a suicide bomber dressed in a uniform walked into an army mess hall and blew himself up, killing at least 25 soldiers. In a separate attack, a suicide bomber targeted two police cars, killing eight Iraqi policemen in a predominately Shia neighborhood of Baghdad. The contrast between the day's bloody death toll and Wood's unexpected rescue symbolize the grim race at the crux of Iraq's counterinsurgency effort. Even as Iraqi soldiers and police are being trained to function on their own, under Iraqi and not U.S. leadership, insurgents are also boosting their technical and recruiting skills, unleashing suicide bombs to devastating effect even in the heart of the security establishment.

Although Wood's rescue seemed largely a stroke of luck, it was also a gauge of what Iraqi soldiers are capable of if trained properly. The brigade already had been fully "trained up" by American instructors who'd drilled them in tactics, procedures and weapons handling, according to Lt. Col. James Guillory of the 256th Brigade Combat Team, which helped train the Iraqi brigade. So the unit's U.S. support consisted of a relatively modest team of U.S. advisers. Although the rescue was described as an Iraqi operation with U.S. assistance, "It's not clear that any Americans were at the kidnappers' house" when the raid began, says one Iraqi Army source.

Even so, it was cause for celebration in both Washington and Canberra. The two governments have been staunch allies in the war effort. And despite the kidnapping of about 200 foreigners in Iraq, the two governments have also stuck to a policy of refusing to pay ransom. When Wood was abducted along with two Iraqi contractors on April 30, a videotape subsequently released to a Western wire service demanded the withdrawal of American, British and Australian forces from Iraq in return for Wood's freedom. A group calling itself the Shura Council of the Mujahedeen of Iraq claimed responsibility. A second video message, this time a DVD, was more modest in its demand: for the withdrawal of Australia's 1,400 troops in Iraq within three days.

In a video received on May 29, the kidnappers' tone had changed, says Nick Warner, head of the Australian Emergency Response Team (ERT) which included diplomats, law enforcement personnel and Special Forces soldiers who'd flown to Baghdad in early May to try to secure the hostage's release. The May 29 communication--what Warner called a "proof of life" video--included a "very large ransom demand ... but at no time was any ransom paid by the Australian government, nor were there any political or other concessions made," he told a press conference. But the May 29 contact did help open a channel of communication between the ERT and the kidnappers through an intermediary. As of several days ago, those contacts seemed to be going nowhere, and optimism about Wood's release was dimming, according to a source familiar with the case who requested anonymity because he wasn't cleared to discuss it with the media. That is, until a freshly trained squad of Iraqi soldiers got a lucky break.