Iraq will review the status of all security companies working in the country after a shooting incident involving guards from the U.S. firm Blackwater, the government said on Tuesday.
In fresh violence, four car bombs in Baghdad killed 17 people and wounded 50, police said.
The government said the cabinet supported an Interior Ministry decision to "halt the license" of Blackwater, which provides security to the U.S. embassy and its diplomats, and launch an immediate investigation into the shooting.
"Cabinet affirmed ... the need to review the situation of foreign and local security companies working in Iraq, in accordance with Iraqi laws," government spokesman Ali al-Dabbagh said in a statement.
"This came after the flagrant assault conducted by members of the American security company Blackwater against Iraqi citizens," Dabbagh said after the cabinet meeting.
Iraq's Interior Ministry said 11 people were killed when Blackwater contractors opened fire at random after mortar rounds landed near the convoy.
U.S. Secretary of State Condoleezza Rice telephoned Iraq's Prime Minister Nuri al-Maliki on Monday to express regret over the death of innocent civilians, which the State Department said occurred during an attack on a U.S. convoy.
Blackwater said its guards had reacted "lawfully and appropriately" to a hostile attack. It also said late on Monday it had received no official notice from Iraq's Interior Ministry.
U.S. officials in Baghdad have yet to clarify the legal status of foreign security contractors in Iraq, including whether they could be liable for prosecution by Iraqi authorities.
The latest bombings in Baghdad came after Sunni Islamist al Qaeda militants pledged a renewed campaign of violence to mark the Muslim holy month of Ramadan, which started last week.
Police said Tuesday's deadliest car bomb attack killed eight people and wounded 22 near a market in the Ur neighborhood, not far from the Shi'ite district of Sadr City.
Three other car bombs killed a total of nine people and wounded 28, police said.
At least two of the explosions were heard echoing across the centre of the city.