U.S. Brig. Gen. Mark Kimmitt said coalition forces suspected the owner and his associates of providing chemicals to "terrorists, criminals and insurgents."
"Based on that and other intelligence, some of our organizations went into the location and were conducting the inspection when the explosions occurred," Kimmitt said.
Kimmitt said intelligence "suggests these individuals were involved in the production of chemical munitions," but the term could refer "to any number of chemical munitions."
"That could be smoke. That could be anything," he said.
He would not disclose whether the Iraq Survey Group, the U.S.-led team searching for Iraq's suspected arsenal of chemical and biological weapons, was involved in the raid.
Five other troops were wounded, as were eight Iraqis in the area, he said. Some Iraqis celebrated after the blast, standing on top of damaged American military Humvees and cheering.
Meanwhile, west of Baghdad in the city of Fallujah, a three-hour firefight Monday between U.S. Marines and insurgents left a coalition soldier and eight Iraqi fighters dead, Kimmitt said.
It was not immediately known what nation the coalition soldier was from.
The battle began when U.S. Marines were patrolling a northwestern section of the city.
Capt. Douglas Zembiec, a Marine company commander in Fallujah, said 10 Marines were wounded, four of them "pretty seriously."
After taking fire from a minaret tower used to call Muslims to prayer, the Marines called in close air support, destroying the 60-foot-tall structure, Marines said.
In addition, fire from helicopters set ablaze buildings in an industrial area of Fallujah, sending clouds of black smoke roiling into the sky.
A Marine commander said he believed his forces were vastly outnumbered and credited them with fighting "like lions" in confronting their attackers.
Marines were deployed in Fallujah in response to the March 31 attack on four American contractors who were killed, their bodies dismembered and hanged.
Fallujans have been put on a curfew and asked to turn in all their heavy weapons before Tuesday night. Kimmitt said Monday that no weapons had been turned in during the past day.
"The amount of weapons that have been turned in come nowhere near approximating the number of weapons that are inside of Fallujah, and clearly do not demonstrate a good-faith effort on the part of the insurgents to meet us halfway -- part of the way -- any part of the way in terms of bringing a peaceful solution back into Fallujah," Kimmitt said.
Kimmitt has warned that the Marines might launch a military offensive to disarm Fallujah's fighters if they fail to hand over their weapons.
The coalition has agreed to start joint Iraqi-U.S. patrols beginning Tuesday, Kimmitt said. Coalition authorities have said they will consider anyone armed who isn't authorized to use a weapon potentially hostile.
Kimmitt said the joint patrols would venture into areas not currently under the Marines' control, calling it a step toward stabilizing the town and restoring Iraqi civil authority there. During the patrols, anyone armed without authorization "will be considered hostile," Kimmitt said. "He will be considered a threat, and appropriate action will be taken."
"As for people walking up and down the streets of Fallujah, we would encourage that," Kimmitt added. "We would encourage the capability not only the people of Fallujah to be walking up and down the streets, but the Iraqi police service and the Iraqi civil defense service and the coalition forces will be walking up and down the streets."
Foreign fighters allegedly paid to attack troops
Members of the U.S.-appointed Iraqi Governing Council met Sunday with foreigners held at Baghdad's Abu Ghraib prison, according to a spokesman for council member Dr. Muaffak Al-Rubai.
The spokesman, Issaa Baghdadi, said Monday that Al-Rubai and other council members met with prisoners from Morocco, Turkey and Syria.
Some of the prisoners acknowledged that they had received payments to conduct attacks on coalition forces and to perform other insurgent operations, Baghdadi said.
Kidnappers: Protest, or the hostages die
Meanwhile, a militant group has threatened to kill three Italian hostages who were kidnapped in Iraq unless their countrymen demonstrate against the presence of Italian troops there, according to a video aired on an Arabic news channel.
Al-Arabiya said a group calling itself the Green Brigade released the video of three men sitting around a table eating. It said these are the remaining three Italian hostages. A fourth hostage, taken with the others on April 12, was executed.
In a written statement the group released with the tape, it demanded Italian citizens organize demonstrations against the presence of Italian troops in Iraq. (Full story)
'Dangerous situation' in Najaf
Coalition officials warned Sunday that a "dangerous situation was developing in Najaf," the holy Shiite Muslim city controlled by radical cleric Muqtada al-Sadr.
Iraqis in Najaf were stockpiling weapons in mosques, shrines and in schools, said Coalition Provisional Authority spokesman Dan Senor, while U.S. forces remained deployed outside the city.
U.S. officials have said they want to capture or kill al-Sadr, who is wanted for questioning in the killing of a rival cleric.
Lakhdar Brahimi, the U.N. envoy leading a team helping Iraq develop a transitional government, said Sunday, "Sending the tanks rolling into a place like this ... is not the right thing to do. And I think the Americans know that extremely well now," Brahimi said on ABC's "This Week."