A huge fire has broken out at the Dura oil refinery outside Baghdad after it was hit by a mortar shell, an Interior Ministry source says.

Firemen were on the scene trying to bring the blaze under control on Friday evening, he said.

"This is a major fire because the mortar fell on the petrol refining area. There are probably many victims. Many ambulances have arrived on the scene," said civil defence spokesman Kazem Bashir Salem.

"Everyone is mobilised. We have sent firemen from 13 stations in Karkh and those in Rasafa are on alert," he said. Karkh is on the west bank of the Tigris in Baghdad and Rasafa the east.

The Dura refinery supplies Baghdad with most of its petrol needs, while fighters have repeatedly targeted Iraq's vital oil infrastructure in the hope of preventing the country's economic recovery.

Italian withdrawal

Earlier on Friday, Italy announced its plans to begin withdrawing some of its troops from Iraq in September, Premier Silvio Berlusconi said.

However, Berlusconi - speaking at the end of the G8 summit - added that any withdrawal plans would depend on security conditions on the ground and could change.

In recent months, Italian officials have gone back and forth on when a withdrawal might begin.

Berlusconi had said September was a possibility, but Foreign Minister Gianfranco Fini then talked of early 2006.

Relations between Washington and Rome have been strained in recent months - first by the killing of an Italian intelligence agent by American soldiers in Iraq, and then by arrest warrants issued by an Italian court that is accusing 13 purported CIA operatives of kidnapping an Egyptian cleric from Italy and sending him to Egypt.

Pressure on Berlusconi has been mounting, even from within his own conservative coalition.

Italian Reforms Minister Roberto Calderoli of the right-wing Northern League party said on Friday the time had come for the United Nations to begin discussing "the progressive withdrawal of troops, beginning with our contingent, perhaps by September".

Meanwhile, Egypt said on Friday it will cut staff at its mission in Baghdad after its top diplomat was killed.

Egyptian Foreign Minister Ahmed Aboul Gheit said the reduction was to protect staff at the mission after al-Qaida in Iraq said it had killed top envoy Ihab el-Sherif.

But Iraq's Foreign Ministry appealed to Arab and Muslim countries not to be swayed by the kidnapping and killing of al-Sherif, which it said was meant to deter them from upgrading their diplomatic missions in Iraq.

Also on Friday, a car bomber had attacked an Iraqi military patrol on the eastern entrance of Falluja city.

Smoke was seen rising from the site of the attack and gun shots were heard, but the number of casualties among Iraqi troops, if any, is not known.

PHOTO CAPTION

US military arrive outside the Egyptian embassy in Baghdad, Iraq during security checks Friday, July 8, 2005. (AP)