CBS News Correspondent Allen Pizzey, in Baghdad, says, "The rumors were false, but frustration over lack of jobs and no prospects for hundreds of thousands of demobilized soldiers plays in to the hands of trouble-makers."
Elsewhere, a U.S. soldier from the 4th Infantry Division was killed and another wounded in an ambush early Saturday in Sadiyah, 60 miles north of Baghdad. The death brought to 88 the number of American soldiers killed by hostile fire since President Bush declared major combat over on May 1.
The trouble started in Baghdad when hundreds of ex-soldiers assembled Saturday morning at a U.S. base at the city's former downtown airport to receive their $40 a month stipend, which the coalition has paid to members of Saddam's army since it was disbanded in May.
The crowd began hurling stones at U.S. troops and Iraqi police. One of the demonstrators explained to Pizzey, "The Americans pushed us like donkeys, so we fought back."
Witnesses said U.S. forces fired shots in the air and Iraqi police fired into the crowd.
Some of the protesters moved to the nearby Mansour district, where they burned and looted four liquor stores and set fire to an Iraqi police car in the upscale neighborhood. Back at the U.S. base, an Iraqi police colonel finally convinced most of the crowd to line up in an orderly fashion so they could receive their pay from the Americans.
One ex-soldier died from a gunshot wound to the head and 25 people were hurt during the Baghdad incident, according to Dr. Abbas Jafaar of the city's al-Yarmouk Hospital. U.S. officials said there were some injuries to coalition troops but refused to give further details.
Meanwhile in Basra, Iraq's second largest city, coalition spokesman Maj. Niall Greenwood said one protester was shot and killed by British troops when ex-soldiers rioted after hearing rumors that Saturday was the last day they would receive stipend payments.
In other developments:
Coalition officials in Baghdad blamed loyalists for provoking the riots. The officials, briefing reporters on condition of anonymity, noted that the riots broke out on the day that the first battalion of newly retrained Iraqi soldiers completed their nine-week basic course — a first step toward establishing a new Iraqi army.
"The fact that the payments to the old conscripts have gone without incident so far and the successful graduation of the first battalion of the new Iraqi army seem to have been a bit too much for the old guard to accept," one official said.
"They started to stir the crowd, they spread rumors the last of the conscripts would not be paid, that the coalition forces did not have enough money. There were clearly groups of former Baathist officers with green banners in the crowd, inciting the others," the official said.
The Bush administration plans to spend $2 billion to create a 40,000-member Iraqi military by the end of next year.
On Saturday, the first batch of 700 recruits completed their basic training at a desert training camp in Kir Kush, 52 miles northeast of Baghdad. The new battalion will be assigned to help the U.S. 4th Infantry Division with security on the Iranian border.
The United States hopes a reconstituted Iraqi army will represent an important step in returning power to the Iraqis following the ouster of Saddam's regime in April.
Separately, the former top police official of New York City and Iraq said it will take as long as two years to bring Iraq's police force to full strength and it may be longer before violent resistance to Americans and their allies is eliminated. Iraq has about 40,000 police officers and needs at least another 25,000, who must be recruited and trained from scratch under close American or international supervision, said Bernard Kerik, the former New York police commissioner. He returned last month from a temporary assignment overseeing Iraq's police services.