Doctors at a local hospital said at least two Iraqis were killed and more than 50 others injured in the attack in the Abu Ghurayb area.
U.S. military spokesman Major Philip Smith said four U.S. soldiers were wounded in the attack.
Police spokesman Ahmed Jawad said the attack targeting a compound housing the mayor's office and a police station was carried out by a suicide bomber.
Insurgents waging a 17-month campaign against U.S.-led coalition forces and the U.S.-backed interim Iraqi government have staged a series of attacks targeting police and security forces in Iraq.
In overnight fighting, U.S. warplanes again bombed suspected militant targets in the Iraqi insurgent stronghold of Al-Fallujah.
The U.S. military command in Baghdad said the overnight attack was aimed at a "known hideout" of supporters of Jordanian militant Abu Musab al-Zarqawi.
Doctors at Al-Fallujah's main hospital said at least three people were killed.
A militant group believed to be led by al-Zarqawi has claimed responsibility for a number of recent attacks and hostage takings in Iraq. The group is now threatening to behead a British hostage they are holding.
British Prime Minister Tony Blair yesterday said his government would respond if Kenneth Bigley's abductors made contact.
"We can't make contact with [the captors]," Blair said. "They made no attempt to have contact with us at all. Of course, if they did make contact, it would be something that we would immediately respond to."
Meanwhile, U.S. officials have said they want to see Syria take concrete measures to prevent militants from entering Iraq after it agreed to tighten its border with the neighboring country.
U.S. officials said the agreement was reached yesterday following talks in Damascus between U.S., Syrian, and Iraqi officials.
(wire reports)For the latest news on Iraq, see RFE/RL's webpage on "The New Iraq".