BAGHDAD (Reuters) – Iraq’s government said one of two women in U.S. custody would be freed on Wednesday, but insisted the move was unrelated to the demands of kidnappers who have killed two Americans and are threatening to kill a Briton.

The Tawhid and Jihad group led by Jordanian al Qaeda ally Abu Musab al-Zarqawi said in an Internet statement it had killed American Jack Hensley because its demands for the release of female prisoners from prisons in Iraq had not been met.

“Lions of the Tawhid and Jihad have slaughtered the second American hostage after the deadline,” the statement said, adding that footage of the killing would be posted on the Internet.

“The British hostage will meet the same fate if the British government does not do what must be done to release him.”

U.S. forces say they only hold two female Iraqi prisoners. Rihab Taha and Huda Ammash, dubbed “Dr Germ” and “Mrs Anthrax” by U.S. forces, are held in a prison for high-level suspects.

There was no confirmation from the kidnappers that their release was specifically what they were seeking.

The kidnappers’ latest statement was posted 24 hours after Hensley’s compatriot Eugene Armstrong was killed, his head sawn off by a black-clad, balaclava-wearing militant using a long knife. The CIA says it believes Zarqawi was probably the one wielding the blade.

In the latest in a wave of car bomb attacks in the capital this month, a bomb exploded outside a Baghdad restaurant on Wednesday, killing at least 11 people and wounding dozens.

Dazed survivors were at a loss to know what the target was.

“They just bombed people eating ice cream,” said Humam Abdul-Hadi, owner of a nearby shop. Shrapnel wounds peppered his face and neck and his T-shirt was stained with blood.

Armstrong, Hensley and Briton Kenneth Bigley were kidnapped from their house in central Baghdad last week.

A senior Iraqi justice official told Reuters the case of Taha, a biological scientist held at a secret high-security facility near Baghdad, was under review and she would be freed, probably later on Wednesday.

“It is possible, God willing. Her case has been under review,” the official said, speaking on condition of anonymity.

Officials say the cases of both Taha and Ammash are being reviewed. Ammash was on the U.S. military’s list of the 55 most-wanted members of Saddam Hussein’s regime.

British Prime Minister Tony Blair, President Bush and Iraq’s interim prime minister, Iyad Allawi, have repeatedly said they will not negotiate with hostage-takers.

Following the announcement of Hensley’s killing late on Tuesday, a U.S. official said a body had been found in Iraq but had not yet been identified. Iraqi officials said a decapitated body was found in a western district of Baghdad.

There was no immediate indication whether it was Hensley, who would have turned 49 on Wednesday.

“Obviously there needs to be a process of identification and the family needs to be contacted,” the U.S. official said.

The family of British hostage Bigley, 62, urged Blair to have the two female detainees freed, Bigley’s brother welcomed the news that Taha could be released from prison.

“It’s a point in the right direction, that’s for sure. It’s what these people have been asking for,” Paul Bigley told BBC radio. “Of course you live in hope, of course you do. But you have to be realistic. I know the Middle East all too well.”

Bush has said Washington will not negotiate, and at the United Nations on Tuesday vowed not to retreat against an insurgency he said was likely to turn even more violent.

In fighting overnight, U.S. tanks raided the Baghdad Shi’ite Muslim stronghold of Sadr City as aircraft bombed the area and helicopters flew low overhead, witnesses said.

Hospital sources said 22 people had been killed and 71 wounded, but there was no word from the Americans on the toll.

(Additional reporting by Mussab al-Kharalla and Mariam Karouny in Baghdad and Miral Fahmy in Dubai)