The U.S.-led coalition also said it grounded commercial flights after the military confirmed that a missile struck a DHL cargo plane that landed Saturday at Baghdad International Airport with its wing aflame.
Nevertheless, American officers insisted they were making progress in bringing stability to Iraq, and the U.S.-appointed Governing Council named an ambassador to Washington — an Iraqi-American woman who spent the last decade lobbying U.S. lawmakers to promote democracy in her homeland.
Witnesses to the Mosul attack said gunmen shot two soldiers driving through the city center, sending their vehicle crashing into a wall. The 101st Airborne Division said the soldiers were driving to another garrison.
About a dozen swarming teenagers dragged the soldiers' bodies out of the wreckage and beat them with concrete blocks, the witnesses said.
"They lifted a block and hit them with it on the face," Younis Mahmoud, 19, said.
Another teenager, Bahaa Jassim, said some looted the vehicle of weapons, CDs and a backpack.
"They remained there for over an hour without the Americans knowing anything about it," he said. "I ... went and told other troops."
Television video showed the soldiers' bodies splayed on the ground as U.S. troops secured the area. One victim's foot appeared to have been severed.
The frenzy recalled the October 1993 scene in Somalia, when locals dragged the bodies of Marines killed in fighting with warlords through the streets.
In other developments:
In Baqouba, just north of Baghdad, insurgents detonated a roadside bomb as a 4th Infantry Division convoy passed, killing one soldier and wounding two others, the military said.
In Baghdad, Brig. Gen. Mark Kimmitt confirmed the Mosul deaths but refused to provide details.
"We're not going to get ghoulish about it," he said.
The savagery of the attack was unusual for Mosul, once touted as a success story in sharp contrast to the anti-American violence seen in Sunni Muslim areas north and west of Baghdad.
In recent weeks, however, attacks against U.S. troops have increased in Mosul, raising concerns the insurgency is spreading.
Simultaneously, attacks have accelerated against Iraqis considered to be supporting Americans — such as policemen and politicians working for the interim Iraqi administration.
On Sunday, gunmen killed the Iraqi police chief of Latifiyah, 20 miles south of Baghdad, and his bodyguard and driver, American and Iraqi officials said. No further details were released.
The assassination occurred one day after suicide bombers struck two police stations northeast of Baghdad within 30 minutes, killing at least 14 people. Gunmen on Saturday also killed an Iraqi police colonel protecting oil installations in Mosul.
Elsewhere, Iraqi police said six U.S. Apache helicopter gunships blasted marshland after insurgents fired four rocket-propelled grenades at the American military garrison at the city's northern end. One Iraqi passer-by was killed in the air attack, police said.
In Kirkuk, 150 miles north of Baghdad, a bomb exploded at an oil compound, injuring three American civilian contractors from the U.S. firm Kellogg Brown & Root. The three suffered facial cuts from flying glass, U.S. Lt. Col. Matt Croke said.
KBR, a subsidiary of Halliburton, also has a significant presence at Baghdad's Palestine Hotel, which was rocketed by insurgents Friday, wounding one civilian.
"We all know that Americans are being threatened," Croke said.
Kimmitt told reporters in Baghdad that witnesses saw two surface-to-air missiles fired Saturday at a cargo plane operated by the Belgium-based package service DHL as it left for Bahrain.
The plane was the first civilian airliner hit by insurgents, who have shot down several military helicopters with shoulder-fired rockets.
DHL and Royal Jordanian, the only commercial passenger airline flying into Baghdad, immediately suspended flights on orders of the coalition authority.
Despite the ongoing violence, U.S. officials insisted the occupation was going well.
"If you look at the accomplishments of the coalition since March of this year, it has been enormous," Marine Gen. Peter Pace, vice chairman of the Joint Chiefs of Staff, said in Tikrit.
Pace is touring Afghanistan and Iraq.
Also Sunday, Iraqi Foreign Minister Hoshyar Zebari said veteran Washington lobbyist Rend Rahim Francke was appointed Iraq's ambassador to the United States. Francke, an Iraq native who has spent most of her life abroad, led the Iraq Foundation, a Washington-based pro-democracy group, and has helped plan Iraq's transition from Saddam Hussein's rule.
The appointment will renew the diplomatic ties between Washington and Baghdad severed in 1990 when Saddam invaded Kuwait.