The family had been on the way to buy clothes in Rawah's small market when the American soldiers opened fire. A helicopter gunship joined in the attack, cutting the car and two of its occupants to pieces.

Hassan's wife, Basima Taha, died almost immediately. His youngest son, Mahmoud Muhsin, was not as lucky. Hit in the torso, his abdomen was torn open, a wound that would prove fatal.

They were outside the main government building in Rawah, a town on the Euphrates River about 90km from the Syrian border, deep in Sunni al-Anbar province, when Hassan turned his car around. He drove down a side street, alongside the civic centre, and found himself heading towards a group of US soldiers - engaged at that time in a major anti-insurgent offensive.

"They started shooting straight away," he said, "I saw no signal, no warning, just the bullets hitting my car. The helicopter joined in. I saw my wife was killed."

The soldiers drove off, leaving the family in the street.

The US military has not apologised for the incident. But it has agreed to pay compensation for the killings, an acceptance that innocent lives were lost.

Under the US "consequence management" system, there is a maximum payout of $2,500 per claim. A dead wife and a dead son are equivalent to two claims; meaning Hassan is in line to receive a total of $5,000 in cash.

Sergeant Jeffery Mubarak, a 37-year-old veteran of four US wars, is one of the soldiers processing compensation in Rawah. "Do I think we're paying the man enough money," he said, "No, I don't. But I just work here. I don't set the rates.

"I try to stay removed from it all and I'm trying to get the man what money I can. That doesn't mean I think it's fair."

Sgt Mubarak, of the Alaska-based 4th Squadron, 14th US Cavalry, continued: "I hope these payments will help anyone who has been in contact with the American army and suffered some kind of loss or damage.

"If it was a bad experience hopefully it'll at least make their lives a little easier."

Any Iraqi can file a claim with US forces for loss or damage caused by military operations. In Rawah, there are twice weekly payment sessions, held at a run-down government building. Claimants, clutching photographic proof of broken doors, smashed windows and demolished homes, queue up in an effort to collect from a limited pool of money.

Some claimants are genuine; others try to claim cash for damage unrelated to US military operations.

The claims are investigated and, if found to be legitimate, payments are made according to a sliding scale. A damaged high-value car or dead family member brings $2,500, while a television destroyed by a hand-grenade is valued at $350.

One entry in the 4/14 Cavalry compensation log reads: "blown-up house, pay $1,300". Another: "destroyed boat, $20". Others include a blown-up potato field and irrigation equipment ($2,000), a damaged door in a hospital ($50) and a burned-down store ($2,500).

During the past two months about $100,000 has been paid out to residents of the Rawah region for damages caused by the 4/14 Cavalry and its predecessors.

In one incident, seven civilians were killed and five wounded when 25 high-explosive mortars were fired on a Bedouin pastoral area: a total of $30,000 was paid out to the families.

That attack is currently being investigated by a US military legal team.

Lieutenant Colonel Mark Fre insisted "all efforts" were made to limit "collateral damage".

"I don't shoot into an area unless I know there isn't going to be collateral damage, just as I wouldn't shoot a guy if there were children behind him. It's a shame you can't say the same about the terrorists."

He continued: "From a cultural perspective, there can be blood feuds in Iraq - you kill one of mine, I'll kill one of yours - unless you make a payment. In this culture, that's OK. It stops a cycle of revenge.

"It seems terrible that you would pay compensation for the death of a family member, but traditionally that's acceptable."

Hassan, now a father of one, said: "The money isn't compensation. You can't pay someone for a life, life doesn't have a money value. How can money make up for what I've lost? I feel bad about even taking the money and I wasn't going to ask for it. But my friends told me 'you have to look after your son now, you can help his schooling and keep him warm with the money, take it'."

And US infantry soldiers patrolling the ground report the Bedouin area hit by the mortars has seen an upswing in bomb attacks since the incident. One officer said, on condition of anonymity: "What else can you expect? If you kill an innocent family accidentally or through negligence you're bound to get consequences; it's bound to turn people against you. It's only natural."

And among some claimants waiting for their compensation in the Rawah government building, anger at US forces remains undiminished.

Abdul Rahman Mohammad Hamadi, a vet who had his clinic smashed by US forces during fighting, said: "We are given a small amount of money months after our livelihoods are destroyed. This is just evidence the Americans have brought us no benefits. They came with violence and destruction and that is all we have seen. That is why so many Iraqis are fighting against the occupation."