Iraqi police detained four people in the killing of American Nicholas Berg and believe a nephew of Saddam Hussein was involved in Berg's beheading, an Iraqi security official said Friday.
Two of the detainees were subsequently released.
At least some of the suspects were former members of Saddam Hussein's Fedayeen paramilitary organization, said the official, who spoke on condition of anonymity. They were arrested May 14 in a house in Salaheddin province, north of Baghdad. The province includes Tikrit, Saddam's hometown.
The group that was involved in the killing of Berg was led by Yasser al-Sabawi, a nephew of Saddam Hussein, the security official said. He said American intelligence had asked Iraqi authorities to hand over the suspects, but they were still in Iraqi hands.
Al-Sabawi was not among those arrested, the Iraqi official said.
Police intelligence agents arrested the suspects as they arrived to "plot other major operations," the official said without elaborating. Four suspects had arrived early for the 7 p.m. meeting and were inside the house, waiting for a fifth associate who escaped arrest, he said.
Police seized weapons and explosives at the site. The Iraqi official said the informant who tipped off authorities was killed by unidentified gunmen the day after the arrests.
American officials have said they believe Abu Musab al-Zarqawi, a Jordanian wanted for allegedly organizing attacks on U.S. troops in Iraq on behalf of al Qaeda, personally carried out Berg's killing.
On Tuesday, Interior Minister Samir Shaker Mahmoud al-Sumeidi refused to comment on reports of arrests in the Berg case.
The body of Berg, 26, was found May 8 near a highway overpass in Baghdad. He was last seen on April 10 when he left his Baghdad hotel.
A video posted May 11 on an al-Qaeda-linked Web site showed a bound Berg in an orange jumpsuit. He was sitting in front of five men, their faces masked, as one read an anti-American text.
After pushing Berg to the floor, the men severed his head with a knife and held it up for the camera. They said his killing was in response to the abuse of Iraqis at Abu Ghraib prison.
The video in which Berg is killed was titled: "Sheikh Abu Musab al-Zarqawi slaughters an American infidel with his own hands."
The U.S. military has already posted a $10 million reward for Zarqawi for having orchestrated some of the deadliest terrorist attacks in Iraq.
Al-Zarqawi is thought to be in Iraq, operating his own terrorist network, known simply as the "Zarqawi network."
Berg was remembered at a private memorial last Friday. He was an intelligent and outgoing man whose travels took him from abject poverty in Africa to perilous hot spots in Iraq, friends said.
Also last Friday, Attorney General John Ashcroft announced that U.S. authorities investigated Berg for a possible connection to terrorists but determined there was no link.
CBS News National Security Correspondent David Martin reports U.S. officials said the FBI questioned Berg in 2002 after a computer password he used in college turned up in the possession of Zacarias Moussaoui, the al Qaeda operative arrested shortly before Sept. 11 for his suspicious activity at a flight school in Minnesota.
Moussaoui is now in federal custody and awaiting trial on conspiracy charges stemming from the Sept. 11 attacks.
"The suggestion that Mr. Berg was in some way involved in terrorist activity, or may have been linked in some way to terrorist activity, is a suggestion that we do not have any ability to support and we do not believe is a valid one," Ashcroft said at a news conference.
The 2002 investigation determined that an e-mail address once used by Berg apparently was obtained by the Moussaoui acquaintances while Berg was briefly an engineering student at the University of Oklahoma in 1999.
The slain man's father, Michael Berg, told reporters that his son met Moussaoui while riding the bus to classes, and had allowed the suspect to use his computer.
But the 2002 FBI interview could explain the bureau's interest in Berg while he was detained by authorities in Iraq shortly before the militants kidnapped and killed him.
Berg was picked up on March 24 and released on April 6. The details of that detention are the subject of a dispute between the Berg family and the U.S. government.
The family contends Berg was detained by the U.S. military, and even filed suit seeking his release on April 5. The U.S. military says Iraqi police detained him. Iraqi police deny that.
To back its claims that Berg was in U.S. custody, the family gave The Associated Press copies of e-mails from Beth A. Payne, the U.S. consular officer in Iraq.
"I have confirmed that your son, Nick, is being detained by the U.S. military in Mosul. He is safe. He was picked up approximately one week ago. We will try to obtain additional information regarding his detention and a contact person you can communicate with directly," Payne wrote to Berg's father on April 1.
The government says the e-mail from Payne was false. State Department spokeswoman Kelly Shannon said Payne's information came from the Coalition Provisional Authority. The authority did not tell Payne until April 7 that Berg had been held by Iraqi police and not the U.S. military, she said.
Coalition spokesman Dan Senor claims Iraqi police arrested Berg in Mosul on March 24 because local authorities believed he may have been involved in "suspicious activities."
But in Mosul, police chief Maj. Gen. Mohammed Khair al-Barhawi has said his department had never arrested Berg and maintained he had no knowledge of the case.
During his detention, Berg was questioned by FBI agents three times.
Berg is believed to have been kidnapped days after Iraqi police or coalition forces released him. The family has blamed the government for keeping him in custody for too long while anti-American violence escalated in Iraq.
Shortly before Berg's disappearance, he was warned by the FBI that Iraq was too volatile a place for unprotected American civilians and that he could be harmed, a senior FBI official, speaking on condition of anonymity, said Wednesday.
Officials said the U.S. government warned Berg to leave Iraq, and offered him a flight out of the country, a month before his grisly death.