A powerful bomb has exploded at a restaurant in Baghdad packed with New Year's Eve revelers. Iraqi authorities say at least five people have been killed, and anywhere between 10 and 20 wounded.

Iraqi ambulances and fire engines screamed up to the devastated restaurant alongside American tanks and Humvees. A car parked outside was in flames, and the Nabil restaurant itself has partly collapsed.

The restaurant in the upscale Arasat neighborhood was popular with wealthy Iraqis and foreigners, and was packed with people celebrating New Year's Eve.

The blast also ripped apart several floors of the apartment building next door, and shattered windows in homes and businesses several hundred meters down the street. A man living in the building had managed to escape, and his wife buried her head in his arms as they stared at the wreckage of their home.

Other confused neighbors wandered in the streets, wondering why the bombers would target a restaurant. This man gave his name only as Saef. "We too, we are surprised. All the Iraqi people are surprised. Why they do something like this? Why? They (are) killing Iraqi people. Why they do something like this? Why? What we can do, what we can say. It's disaster. We guess New Year will come, it will be better, but on the contrary, day by day everything will be very bad. No security, no security," he said.

American helicopters buzzed overhead, while U.S. soldiers sealed off the area. "All right, let's just secure the area, so that way just in case there's a secondary explosion no one else gets hurt," said one soldier.

The blast came just hours after the commander of U.S. forces in Baghdad said his troops were preparing for a series of New Year's attacks, possibly similar to the ones that hit the city on Christmas Day.