The suspect - a member of the Quds Force, an elite unit of Iran's Revolutionary Guards - was detained in the Kurdish city of Sulaimaniyah, the military said.
He was allegedly involved in transporting roadside bombs, including armor-piercing explosively formed penetrators, or EFPs, into Iraq, according to a statement. It said intelligence reports also indicated he was involved in the infiltration and training of foreign fighters in Iraq.
Officials have said the Bush administration is expected to soon blacklist the Quds force as a terrorist organization, subjecting part of the vast military operation to financial sanctions. The move would be in response to Iranian action in Iraq and elsewhere.
Also Thursday, the No. 2 U.S. commander in Iraq a 7-month-old security operation has reduced violence by 50 percent in Baghdad, but he acknowledged that civilians were still dying at too high a rate.
The comments came as relations between the U.S. and Iraqi governments remained strained in the wake of Sunday's shooting involving Blackwater USA security guards, which Iraqi officials said left at least 11 people dead. Prime Minister Nouri al-Maliki suggested the U.S. Embassy find another company to protect its diplomats.
The North Carolina-based company has said its employees acted "lawfully and appropriately" in response to an armed attack against a State Department convoy.
But a survivor who said he was three cars away from the convoy denied the American guards were under fire, claiming they apparently started shooting to disperse more than two dozen cars that were stuck in a traffic jam.
Lt. Gen. Raymond Odierno told reporters that car bombs and suicide attacks in Baghdad have fallen to their lowest level in a year, and civilian casualties have dropped from a high of about 32 to 12 per day.
He also said violence in Baghdad had seen a 50 percent decrease, although he did not provide details about how the numbers were obtained and said that was short of the military's objectives.
"What we do know is that there has been a decline in civilian casualties, but I would say again that it's not at the level we want it to be," Odierno (picture at left) said. "There are still way too many civilian casualties inside of Baghdad and Iraq."
(AP Photo/Ali Abbas, Pool)
Al Qaeda in Iraq was "increasingly being pushed out of Baghdad, "seeking refuge outside" the capital and "even fleeing Iraq," Odierno said.
Iraqi military commander Lt. Gen. Abboud Qanbar said that before the surge, one-third of Baghdad's 507 districts were under insurgent control.
"Now, only five to six districts can be called hot areas," he said. "Al Qaeda now is left only with booby-trapped cars and roadside bombs as their only weapons, which cannot be called quality operations, and they do not worry us."
The assessment contradicts a message released Thursday in the form of a Web video, in which al Qaeda's second in command touts the "defeat" of American military efforts in both Iraq and Afghanistan.
In other developments: