Coalition forces in Iraq suffered a substantial setback on Tuesday, with the kidnapping of five Britons and the announcement that 10 American soldiers had been killed on Memorial Day, marking the deadliest month for US forces for more than two years. Meanwhile, 32 Iraqis were killed in two separate explosions in Shia areas of Baghdad on Tuesday.

At 11.40 am local time, Iraqi police vehicles surrounded the Finance Ministry on Palestine Street in eastern Baghdad as gunmen wearing Iraqi police commando uniforms stormed the building. They seized four British security guards and a computer consultant at gunpoint and took them away in the vehicles.

Canadian security firm Garda World confirmed that the hostages are four Britons employed on security detail as well as their client, a management consultant, who is believed to be employed by a US-based management consultancy firm BearingPoint.

British Prime Minister Tony Blair, who was visiting Libya, told reporters: “We will do everything we possibly can to help.”

A British foreign ministry spokeswoman also said, “Officials from our embassy are in urgent contact with the Iraqi authorities to try to establish the facts and to secure a swift resolution.”

The kidnapping is most likely the work of the Mahdi Army, a Shia militia loyal to nationalist cleric Moqtada al-Sadr, to avenge last week’s killing of local Mahdi Army leader Abu Qadir in Basra carried out by Iraqi special forces supported by British troops. The Iraqi police force has long been infiltrated by Mahdi Army militiamen.

The Mahdi Army has issued conflicting statements. According to The Times, a local Mahdi Army commander in Basra, Abu Hussein, apparently claimed responsibility for the kidnapping with this statement: “It is not only a reaction but it is the end of the British here. We will take revenge on the British. It is not just this operation but there will be more and bigger operations against them. In quality and quantity.”

However, another Mahdi Army commander in Baghdad denied the militia’s involvement and said, “We called all our groups immediately afterwards and no one said they did it.”

It is also possible that Sunni insurgents, including al Qaeda in Iraq, took the Britons hostage. If that is the case, then it may be more difficult to secure the hostages’ safe release, since these groups have been known to kill their captives and have never made representatives available for negotiations.

A British crisis team known as Cobra (Cabinet Office Briefing Room A), which usually meets at the Prime Minister’s office in Downing Street, is trying to establish lines of communication with the kidnappers. The team includes British diplomats, police hostage negotiators and intelligence specialists.

The British Embassy remains in shut down while Iraqi police inspect vehicles and question drivers at roadblocks, and Iraqi tanks survey passing traffic.

US and Iraqi forces also raided Baghdad neighborhoods overnight, including the Mahdi Army stronghold of Sadr City, searching for the captives.

News of US casualties dealt another blow to the new security plan meant to bring peace to Iraq. On Monday, two American soldiers were killed when insurgents shot down their helicopter over Diyala province northeast of Baghdad. Six more soldiers were killed by roadside bombs as they rushed to the crash site. Roadside bombs also claimed the lives of two US soldiers as they patrolled an area in southern Baghdad.

This brings the death toll for US troops to 114 for the month of May and marks the second deadliest month for the US military since November 2004, when 137 soldiers were killed.