The video shows the hostage, who identifies himself as 26-year-old Pennsylvania businessman Nick Berg, seated in front of five masked individuals, one of whom reads a statement in Arabic. Berg is then pushed to the floor while one of his captors cuts off his head with a large knife. The severed head is then displayed for the camera.
"For the mothers and wives of American soldiers, we tell you that we asked the U.S. administration to exchange this hostage with some of the detainees in Abu Ghraib, and they refused," reads a partial translation of the statement from the video, that appeared on a known extremist group's Web site. "So we tell you that the dignity of the Muslim men and women in Abu Ghraib and others is not redeemed except by blood and souls. You will receive nothing from us but coffin after coffin slaughtered in this way."
The statement also reportedly said Muslims everywhere should be enraged by American activities in Iraq and should seek vengeance.
"Regarding you, Bush, dog of the West, we are giving you good news which will displease you," the statement reportedly said. "Your worst days are coming, with the help of God. You and your soldiers will regret the day when your feet touched the land of Iraq and showered your bravery on shelters of Muslims."
A text message included on the video said Abu Musab Zarqawi, al-Qaida's top leader in Iraq, personally cut off Berg's head.
Zarqawi is wanted by U.S. officials for the murder of American diplomat Laurence Foley in Jordan and a string of terrorist attacks and bombings in Iraq that have killed hundreds of civilians and soldiers.
Berg, the owner of a small business that did maintenance on radio towers, reportedly went to Iraq to find work. He did not have a government contract and was not affiliated with any company other than his own.
Iraqi officials reportedly arrested Berg on March 24 at a checkpoint in Mosul. He was then turned over to U.S. officials, who held him for 13 days, according to an Associated Press report.
However, U.S. officials in Iraq said Wednesday that Berg was never in U.S. custody, but was visited by FBI agents while in the custody of the Iraqi police.
"He (Berg) was at no time under the jurisdiction or detention of coalition forces," said Coalition Provisional Authority spokesman Dan Senor Wednesday.
While he was being held in Iraq, FBI agents also went to his parents' home in West Chester, Pa. to ask about Berg's activities.
Berg's parents filed a lawsuit against the U.S. Defense Department on April 5 seeking the release of their son. Berg was released April 6 and the family dropped the suit. Berg's parents say he contacted them on April 9 to say he was going to try to find a way home.
Berg's decapitated body was found on May 8 near a highway overpass in Baghdad. On May 10 the U.S. State Department informed the family that Berg's body had been found. Reporters told the Berg family about the grisly video Tuesday.
While images of the execution of Berg continued to air around the globe Wednesday, fighting intensified in parts of Iraq between Shiite insurgents and coalition forces.
As fighting flared in and around the holy cities of Karbala and Najaf Wednesday, insurgent leader and radical cleric Muqtada al-Sadr called on his followers to fight U.S. forces.
"I appeal to the fighters and mujahedeen in Karbala to stand together so as none of our holy sites and cities are defiled," al-Sadr said. "We are prepared for any American escalation and we expect one."
Al-Sadr further said his forces could hold out and win a victory against coalition forces by using guerilla warfare tactics.
"Let remind you of Vietnam," al-Sadr said. "We are an Iraqi people that has faith in God, and his prophet and his family. The means of victory that are available to us are much more than what the Vietnamese had. And, God willing, we shall be victorious."
Coalition forces reported that 25 Iraqi insurgents were killed in Karbala Wednesday, where fierce fighting has destroyed or set ablaze a number of buildings including a mosque.
The fighting comes one day after American-backed Iraqi officials reportedly reached an agreement to end the standoff between coalition forces and al-Sadr's militia.
The cleric's statements marked the first time he has talked to the press since his militia began its violent opposition to coalition forces. Al-Sadr reportedly said American forces are fighting against Islam and made reference to the abuse of Iraqi detainees by American guards at Abu Ghraib prison.
"Look at what they have done," al-Sadr said. Look what the torture they have committed against our detainees. Could anyone who came to rid us of Saddam do this?"