American troops raided the home of the mastermind of Saddam Hussein's biological weapons lab on Wednesday and discovered a sprawling, recently abandoned terrorist training camp south of Baghdad as they dug for secrets from a dead regime.

With major combat over, the Bush administration lowered the terrorist threat at home to yellow, down a notch from its wartime level of orange. "Terrorists and tyrants have now been put on notice, they can no longer feel safe hiding behind innocent lives," said President Bush.

Inside Iraq, Army forces exchanged fire with a small number of die-hard paramilitary fighters north of Baghdad, then proceeded to take out two surface-to-air missile systems and three anti-aircraft guns left over from Saddam's military. And Iraqis in Mosul said three people were killed and at least 11 wounded by gunfire, but the circumstances were murky.

After days of looting and mayhem in Baghdad, Americans armed newly recruited Iraqi police officers with handguns to help keep order. And citizens sought to pick up their normal lives.

"The market is open and products are available," said Tadamoun Abdel-Aziz as she shopped with her son for eggs, bread and vegetables in the downtown Irkheita Market. But with power only partially restored and temperatures in the 90s, Baghdad residents bought three-foot blocks of ice.

American commandos backed by about 40 Marines staged the raid on the residence of Rahib Taha, dubbed "Dr. Germ" by United Nations weapons inspectors. Taha, a microbiologist, was in charge of Iraq's secret biological laboratory, suspected of weaponizing anthrax.

Three men emerged from the raid on her home with their hands up, and American troops removed several boxes of documents. Her whereabouts were unknown.

Administration officials said the desire to eliminate weapons of mass destruction was one key reason for the war, although none has yet been found. "We're really just in the early stages of that" search, Brig. Gen. Vincent Brooks told reporters at a briefing at Central Command headquarters.

The United Nations weapons inspectors also failed to find any banned weapons in prewar searches. Hans Blix, the chief inspector, is expected to appear before the U.N. Security Council next week to discuss a possible resumption of the effort -- even though the United States has not invited the international team back into Iraq.

A Marine spokesman, Cpl. John Hoellwarth, said the terrorist training camp consisted of about 20 permanent buildings on 25 acres south of Baghdad, and was operated by the Palestine Liberation Front and the Iraqi government.

He said recruits were apparently instructed in the art of bomb-making, adding that Marines found chemicals, beakers and pipes at the site, along with questionnaires that asked recruits to state their preferences. Hoellwarth said many volunteered for suicide missions.

The discovery came less than a day after American officials disclosed the capture in Baghdad of Abul Abbas, a Palestinian behind the 1985 hijacking of an Italian cruise ship in which one American was killed. Other suspects were taken in a series of raids that also netted weapons such as rocket-propelled grenades, military officials said.

Together, the events buttressed the Bush administration's long-standing claims that Iraq under Saddam provided sanctuary to terrorists.

Bush, speaking in St. Louis, stopped just short once more of declaring victory. "Now that Iraq is liberated, the United Nations should lift economic sanctions on that country," he said.

There were ample signs that Iraq was becoming safer, including a visit to Baghdad by Gen. Tommy Franks, the commander of Operation Iraqi Freedom. Franks was driven to one of Saddam's ornate palaces, where he met with his top commanders and greeted the troops.

"This gives me a chance to meet these people who've been doing such a great job down here," said Franks, who has run the war from a command post in Qatar.

At the same time, there was reduced concern about the terrorist threat at home.

The threat level was raised to orange on March 17, days before the war began. And in lowering it, the administration said risks remain.

"We must be vigilant and alert to the possibility that Al Qaeda and those sympathetic to their cause, as well as former Iraqi-regime state agents and affiliated organizations, may attempt to conduct attacks against the U.S. or our interests abroad," Homeland Security Secretary Tom Ridge said in a statement.

The yellow level signifies an elevated risk of terrorist attacks. It is the middle level on the five-tier danger scale. Orange suggests a high risk and is the second-highest level.

Circumstances of the reported shootings in Mosul were unclear. Several of the wounded said American troops had shot them. But a Marine sergeant denied that. He said American troops had come under fire from nearby gunmen and shot back.

Mohammed Rabih Sheet, an administrator at Jumhuriya Hospital, said three people were killed and 11 wounded, including two children.

It was the second outbreak of gunfire in as many days in Mosul, a city of 700,000 where Arabs and Kurds are highly suspicious of one another and tensions have been high since American forces rolled in a week ago.

Iraqis accused Americans of opening fire on a crowd in an incident Tuesday, but Brooks denied that. He said troops guarding a wall around a government complex fired warning shots after seeing Iraqis firing into the air.

Brooks said Americans were shot at, then began firing at people in the crowd, including some trying to scale the wall.

In Washington, a senior defense official said the Pentagon has spent about $20 billion so far to fight the war. Dov Zakheim, the Pentagon's comptroller, said at least several billion dollars more will be spent getting combat troops back home.

Congress recently approved legislation providing $80 billion for the war in Iraq, the battle against terrorism and related costs.