The video sells for less than $1 at any market in Baghdad. On the soundtrack of the amateurishly edited disk, a raw, wailing male voice sings to a Sufi melody often heard at Iraqi funerals, with new words grafted to the old tune: "We salute the brave people of Fallujah, who dared to stand up to the Americans... Our country has fallen into the hands of the Americans, and we need brave men to slaughter the occupiers." The paean--about a showdown between Iraqi protesters and U.S. soldiers during the early days of the occupation--is accompanied by grainy footage pirated from a copy of "Black Hawk Down," director Ridley Scott's retelling of the disastrous 1993 U.S. intervention in Somalia. As the video nears its end, the singer's words grow steadily more excited: "They [the Americans] were left on the ground. No one came to help them... All Arabs are talking of our bravery!" The helicopter of the movie's title is hit by a rocket-propelled grenade. Debris flies everywhere, and the bloody, wide-eyed face of an American soldier fills the screen.

Fallujah is not Mogadishu, despite the similarity. Both cases share a particularly abhorrent theme: the corpses of U.S. security personnel being mutilated and dragged through the streets by gleeful mobs. But there's at least one overriding difference: "We can't leave," says an officer with a major U.S. security firm in Iraq. If it takes a million f---ing American lives, we have to stay." After watching TV footage of Iraqis mutilating the Americans' bodies and then hanging two of the corpses from a bridge, President George W. Bush called for a special briefing on the military situation in Fallujah. The most explicit outline of America's planned response came from the Coalition's deputy operations chief, Brig. Gen. Mark Kimmitt: "Quite simply, we will respond... It's going to be deliberate, it will be precise and it will be overwhelming."

In the back corridors where work gets done, officials don't sound so confident. "The White House doesn't get that we need more troops--significantly more troops," says one knowledgeable Coalition Provisional Authority source. "They don't get that we need more resources for our people." The problem goes far beyond Fallujah, where U.S. forces must find a way to punish the killers without worsening the town's hatred of Americans. All of Iraq somehow needs to be put into reasonably good order by July 1, when Iraqis are supposed to begin governing themselves. "If Iraq descends into civil war, we will be distinctly less safe than we were before this invasion," says the CPA official. "Everything is at stake now. What we do in the next three months politically and militarily will determine whether the war has made us safer."

Iraq has become a strategic battleground in the war on terror, even if it wasn't so before. Proponents of the invasion like Paul Wolfowitz, the deputy Defense secretary, argue that a democratic Iraq would be a catalyst, spreading reform throughout the Mideast by showing democracy's benefits. But if the attempt fails, it could further destabilize the entire region. Already Iraq has become like Afghanistan in the '80s, a rallying cry for Islamic militants around the world. Although the number of foreign militants who have actually been captured in Iraq remains relatively small--perhaps 150 from a total of roughly 12,000 detainees--the U.S. military claims that jihadis have swarmed in from 27 countries. "If [government officials] just gave us the chance, thousands would go immediately," says Nasser Abdel Azim, a medical student at Egypt's Banha University.

As delighted as most Iraqis are to be rid of Saddam, they still aren't free. Never mind the U.S. military presence. It's no more than an inconvenience next to the insurgents and common criminals who effectively rule much of the country. "You used to be able to leave your BMW unlocked in the middle of the street at 2 a.m.," recalls one veteran Western diplomat in Baghdad. "Now we live under this house arrest." As he speaks, his house is suddenly shaken by a thunderous explosion from somewhere outside his compound's blast walls. "This is the new Iraq," he says, not even flinching.

The plan is to hand over security to Iraqis as quickly as possible. But in the past six months, 632 Iraqi police have been killed, more than double the U.S. military's losses in the same period. As a result, Iraqi law officers have grown cautious to the point of timidity. (During the killings in Fallujah, a passing police car spun away and fled the scene.) The military is worried enough to send Maj. Gen. David Petraeus, commander of the 101st Airborne Division, back to Iraq to oversee organization and training of the country's security forces.

American troops never got to Fallujah at all on the day of the killings. The four victims were civilians working for Blackwater Security Consulting, one of the leading companies in its field. No one was saying publicly just why the four happened to be driving through Fallujah, one of the most notoriously anti-American places in the country. The 82d Airborne had overseen that part of Iraq for much of the past year, but sources say the division's fighters mostly steered clear of the city itself. Even so, the gunmen who carried out the ambush seemed to be expecting action when they showed up that morning. Townspeople were reportedly warned to stay out of the line of fire.

Bringing the killers to justice will require more than just overwhelming firepower. The gunmen reportedly left the scene as soon as they had emptied their AK-47s into the two unarmored vehicles. Bystanders put on a show afterward for the Arab cameramen, abusing the corpses and setting the victims' cars on fire. One of the Americans may have clung to life briefly after the attackers were gone. Pictures aired on one Arabic satellite channel showed one of the victims with a raised hand, apparently clenching and opening, next to a burning car. In a still photoposted on Al-Jazeera's Web site, taken before the car was torched, the man was lying flat.

Punishing the killers will be the job of the I Marine Expeditionary Force, which took over responsibility for the Fallujah area just a week before the ambush. The Marines arrived promising to restore order in the city, and their stepped-up patrols resulted in a firefight that left at least 30 Iraqis and three Marines dead even before the Blackwater incident. Now they're preparing to show, for all Iraqis, that they cannot be intimidated.

U.S. forces have generally tried to avoid such confrontations. Last summer they were running about 2,400 patrols a day nationwide, according to official figures. In the latest reports, the number has fallen to 1,400. Most American troops live huddled in a few sprawling encampments that have grown into small cities. Of 105,000 U.S. military personnel now stationed in Iraq, more than half are housed in just four megabases. There used to be 60 U.S. bases in Baghdad, but the last of those posts is to close by the end of this month, and U.S. troops will have pulled back to eight big suburban enclaves. The only base within the city will be inside the Green Zone, protecting the CPA and what is being planned as the world's largest U.S. Embassy. Already it's possible to spend an entire day traveling around the capital's Iraqi sectors without seeing a single GI.

The retrenchment hasn't stopped the attacks on American troops. Last month alone 52 died. Since the official end of major combat operations last May, only one other month has exceeded that toll: November, with 82 Americans killed. One security analyst estimates that the opposition is staging --about 150 attacks a day, mostly nonfatal and never mentioned in the U.S. military's official count, which averages 27 a day. Daytime attacks used to be rare, but they are in the majority now, partly because few people dare to go outside at night.

At the same time, attacks on civilians have increased. At least 60 foreign contractors have been killed so far, but many attacks go unreported. "They're going after civilian targets, softer targets, because they know if they attack us they're going to die," says Lt. Col. Ken Devan, a U.S. Army military-intelligence specialist in Baghdad.

Anyone can be a target. Your occupation or nationality doesn't seem to make any difference. The latest victims have included two Finnish businessmen, a German and a Dutch citizen, four American missionaries and bodyguards from Canada and Britain. It's increasingly clear that any foreigner or anyone who even remotely works with foreigners is viewed as fair game by the insurgents.

Some foreign militants--and an unnerving number of Iraqis--seem willing to die for the insurgency. Since the war began, at least 48 suicide bombers have killed more than 700 people. At first, Iraqis insisted that the bombers came from outside the country, says Brig. Gen. Mark Hertling, deputy commander of the First Armored Division. "Saddam had distributed more than 200 explosive jackets to his followers before liberation, and he asked them to blow themselves up when they met foreigners," says Ibrahim al-Janabi, who was one of Saddam's spymasters in the 1980s until the dictator caught him plotting a coup. "But very few Baathists did what he ordered. After he fell, they began giving money to foreigners--peanuts, really--to become suicide bombers." Lately things have changed, Hertling says: "Even Iraqis are now admitting that it's Iraqi suicide bombers, too."

The growing threat to civilians has badly stalled reconstruction. Security is almost the only job engine. Blast walls are being installed in "Mad Max" profusion. Barbed wire arrives by the truckload to festoon walls and rooftops. Watchtowers rise at the corners of every compound where foreigners or Iraqi officials work or live. Meanwhile there's no significant improvement in basic services.

Good-quality gasoline is so scarce that the U.S. military recently granted a contract to a Jordanian company, Shaheen Business and Investment Group, to deliver $72 million worth, at $1.70 a gallon. Iraq is swimming in gas, and Jordan has no significant oil reserves or refineries, but the Iraqi fuel is so bad these days, it's disabling cars all over the country. The CPA can't even buy insurance for its fleet of SUVs because local gas has wrecked their engines. Shaheen outbid four other companies for the contract, deeply undercutting $2.64 a gallon demanded by Halliburton last year for similar services.

The U.S. Military is stretched to its limit by an insurgency that is vastly larger and more competent than anyone expected. Eight of the Army's 10 active divisions either have gone to or are returning from Iraq. The generals are already scratching their heads over how they can handle another troop rotation next year on the scale of the one they're just finishing--which, incidentally, was the biggest movement of U.S. troops and their gear since World War II. They have no idea what they would do in the event of a full-blown civil war. The TV images from Fallujah proved that many Iraqis hate the U.S. presence with an intensity that defies description. Even when religious leaders in Fallujah later condemned the mutilation of bodies, they were careful not to criticize the actual killings, which were widely praised.

The Iraqis are nowhere near ready to take on their own security responsibilities. According to a draft working paper dated March 26, the Defense Department intends to put 75,000 trained police officers on duty. So far, the paper says, only 2,865 Iraqis--barely 3 percent--meet that description. An additional 13,286 are partially qualified and on duty, 3,245 are in training and 56,448 are on the payroll but not trained.

The White House insists that the July 1 handover date is immutable. White House aides say Washington is actively seeking a bigger role for the United Nations in Iraq, particularly in helping the Iraqis set up an interim government. But practically nothing has been decided yet, beyond the Iraqi Governing Council's approval of a temporary Constitution. Even that step is under fire from the Iraqi Shiites' most venerated leader, Grand Ayatollah Ali Sistani, who believes the document's guarantees of minority rights are an unacceptable hindrance to Shiite majority rule. Most observers agree that a word from him could bring on a civil war. The administration is praying it won't come to that.

Even if it doesn't, no one seems sure who the insurgents are. Wolfowitz's boss, Donald Rumsfeld, used to shrug them off as "dead-enders." But they seem to be drawing recruits from many corners of Iraqi society, not just from minority Sunnis. Bush aides are worried by the increasingly combative stance of young Shiite radicals like Moqtada al-Sadr, who controls a loosely organized militia of perhaps 10,000 members. He published his own newspaper until last week, when the CPA shut it down for inciting violence. Now many U.S. officials are urging his immediate arrest be-fore he causes more trouble. "Something will have to be done about him," says a source involved in the talks. "But we have three months."

And yet is three months enough time to deal with Shiite radicals like al-Sadr, pacify the Sunnis in Fallujah, create a new government and staunch the bloodshed enough for reconstruction to take hold? If not, Iraq's nightmare may come to resemble not so much Somalia in 1993 as Afghanistan in the 1980s. The Soviets' war with the mujahedin lasted nine long years, set off a global jihad and created fanatics like Osama bin Laden. We're paying for it still.