Guerrilla "masters of intimidation" are also successfully countering the U.S. military's own psychological campaign.
One of the most demoralizing weapons in the campaign has been the release and broadcast of four videotapes of hostages, one of whom was filmed during his execution.
Insurgents have also issued a burst of fliers and statements warning Iraqis against cooperating with the U.S.-led occupation. The U.S. military used similar fliers and warnings to intimidate the Iraqi army during the war.
"There are activities here, people here, insurgents and extremists who are masters of intimidation," a senior U.S. military official said, speaking on condition of anonymity.
Officials suspect former members of Saddam Hussein's Baath party of being behind some of the campaign. Baathist operatives once ruled Iraq under a blanket of fear. Now they are recreating that aura of intimidation, experts say.
"The Baath was and is a secretive party that knows how to operate underground. These guys are good," said Robert Baer, a former CIA operative who worked covertly in northern Iraq during a 21-year career in the Middle East.
"The plan is to force all contractors out. Kidnapping, mutilations and executions will work, as they did in Lebanon" during the civil war in the 1980s, Baer said. "This will be the template for Iraq."
The U.S. military is worried that the dangers will force Western media to flee Iraq, and the world will rely more on Arab media outlets — like satellite TV channels Al-Jazeera and Al-Arabiya — for coverage.
U.S. officials have long complained that the two satellite channels portray the occupation unfairly. The U.S.-led occupation administration has already created a "war room" to counter what it calls incorrect coverage on Al-Jazeera. Coalition press officials scan the network for erroneous reports, and then point out those reports to journalists during daily press briefings.
Last March, the U.S. Army launched its own psychological operation, the largest in U.S. history, carting in portable radio stations and tons of leaflets during the invasion of Iraq. Last summer, the Army had 11 Psychological Operations companies with almost 1,000 Psyop personnel working to sway Iraqis to join rebuilding efforts and see the bright side of the occupation.
The military or other U.S. government branches also control several Iraqi newspapers, television and radio stations, as well as the just-opened Al-Hurra Arabic language satellite TV station.
Iraqi insurgents' campaign promotes the opposite message: Guerrilla fighters are the true heroes; U.S. forces can't control Iraq or protect civilians; and those who support the occupation do so at their peril.
"You see it with these fliers that say 'Stay away from work from the 15th to the 23rd of April,' and 'Stay home from school today,' and 'If you work with the coalition you're a marked man or woman and so is your family,"' the U.S. official said. "You see it used against the police and the Iraqi security forces."
Army convoys that rely on civilian drivers have been bottled up, and one soldier has been abducted and another is missing. The kidnapped man, U.S. Army Pfc. Keith Maupin, 20, appeared on Al-Jazeera on Friday in yet another rebel video. Five armed men stood behind the seated soldier, their faces covered by tribal keffiyah scarves.
The psychological campaign has otherwise had little direct effect on the U.S. military.
But the guerrilla efforts could inflict huge damage on the rebuilding of Iraq and its economy, including the $18.4 billion construction campaign funded by U.S. taxpayers, said Anthony Cordesman, an Iraq expert with the Center for Strategic and International Studies in Washington.
The climate of fear in Iraq — along with the simultaneous doubling of insurgent attacks — has kept foreigners from traveling, hampering rebuilding efforts and curtailing news coverage. In some areas the U.S. military appears to have lost control of the highways, and Iraqi guerrillas have set up their own roadblocks.
The military announced the closure of two highways into Baghdad on Saturday.
"The reconstruction projects which are so critical to the onward development of this country will be slowed down because contractors will be intimidated to come in," said Army Brig. Gen. Mark Kimmitt on Friday. "Every additional security guard and every dollar that's paid for security is one less dollar to put into the infrastructure."
If the campaign keeps up, it could discourage foreign aid for an emerging Iraqi government while sparking demands by the American public for a troop withdrawal, Cordesman said.
Before the invasion, Cordesman said U.S. military planners predicted the emergence of such a campaign, which led then Army Chief of Staff, Gen. Eric Shinseki, to call for 200,000-member U.S. occupation force.
Deputy Secretary of Defense Paul Wolfowitz called Shinseki's estimate "wildly off the mark." Cordesman said recent boosting of coalition troop levels beyond 150,000 show the wisdom of Shinseki's predictions.
Among Iraqis, the psychological campaign is especially effective. Many distrust government information sources and put more credence in rumors, said Jeremy Binnie, an Iraq analyst with the London-based consultancy Jane's.
"This information culture is perfect for the insurgents," Binnie said. "They can spread anti-coalition disinformation that people will read and often believe."