The video of the execution of Nick Berg, who owned a communications equipment company, appeared on a website operated by a group called Muntada al-Ansar. The website has been previously used by Al-Qaeda. Berg's decapitated body was found in Baghdad on 8 May.

A statement by one of the masked men present at the execution suggested that an offer had been made to the US government to exchange Berg for some of the detainees at Abu Gharib prison, but was refused. Washington has not commented on this. The statement then warned of a wider war on the West in retaliation for the abuse at Abu Gharib: 'So we tell you that the dignity of the Muslim men and women in Abu Gharib and others is not redeemed except by blood and souls. You will receive nothing from us but coffin after coffin slaughtered in this way.'

The man said to have carried out the execution was named by the website as Abu Musab al-Zarqawi, a Jordanian national with links to Al-Qaeda, who the US believes is behind other deadly terrorist attacks.

Washington said those who beheaded Berg would be hunted down and brought to justice.

'Our thoughts and prayers are with his family,' White House Press Secretary Scott McClellan said. 'It shows the true nature of the enemies of freedom. They have no regard for the lives of innocent men, women and children.'

The US has offered $10 million for information leading to the capture or killing of Al-Zarqawi.