A kidnapped British journalist was rescued by Iraqi troops on Monday after two months in captivity in the southern city of Basra, the Iraqi military said.

Richard Butler, who worked for CBS News, was found with a sack over his head and his hands tied inside a house in Basra, Lt. Gen. Mohan al-Fireji said. He said Butler was in good condition.

Butler was found during an Iraqi military sweep in the Jibiliya area, a Shiite militia stronghold in Basra, 340 miles southeast of Baghdad.

Defense ministry spokesman Mohammed al-Askari said that an army patrol conducting a search came under fire from the house where Butler was being held. One of the gunmen was wounded in an exchange of fire and another captured while two men managed to escape, he said.

Butler was later shown on Iraqi state television laughing and greeting his rescuers.

"Thank you and I'm looking forward to seeing my family and my friends at CBS and thank you again," Butler told al-Askari.

He described the soldiers' performance as "brilliant."

"The Iraqi army stormed the house and overcame my guards and they burst through the door," Butler said. "I had my hood on which I had to have on all the time and they shouted something at me and I pulled my hood off."

In London, British Foreign Secretary David Miliband welcomed Butler's release and said he was "very grateful to (Iraqi) security forces for the professionalism of the task they have undertaken."

He said Butler was in the care of the British consulate in Basra.

Butler was kidnapped along with his Iraqi interpreter on Feb. 10 in Basra. The interpreter was later released. Iraqi police and witnesses said the two men were seized by about eight masked gunmen wielding machine guns who stormed a hotel in the city.

In recent days, Iraqi forces have started house-to-house sweeps for arms, weapons, drugs and criminal elements in several parts of Basra, Iraq's second-largest city. The military said it has uncovered an improvised explosive device factory, along with significant arms caches and numerous roadside bombs, mortars and rocket-propelled grenades.

Serious fighting in Basra abated since a failed government offensive last month to dislodge militia groups. But sporadic violence has been continuing in the country's oil capital.

On Sunday night, unknown gunmen assassinated police Maj. Ali Haider, a commander in the department's serious crimes directorate.

Haider was a member of the Supreme Islamic Iraqi Council, a Shiite political party that is part of the governing coalition of Prime Minister Nouri al-Maliki, Basra police Col. Salim Zaydi said.

Sporadic clashes also have continued in Baghdad, where Iraqi and U.S. troops have confronted the Mahdi Army militia of anti-American cleric Muqtada al-Sadr. Dozens have died in the daily violence in the capital's eastern districts during the past two weeks.

A large section of a market area in eastern Baghdad was set ablaze early Monday when a bomb exploded next to a convoy of U.S. military vehicles driving down a commercial thoroughfare.

The U.S. military said none of the soldiers involved was seriously hurt in the 2 a.m. blast. More than a dozen U.S. and Iraqi firefighting vehicles rushed to the scene to put out the fire, which continued until morning.

Later in the day, another roadside bomb in downtown Baghdad killed five people and wounded nine, police said. The blast missed a police patrol but hit a passing minibus, said a police officer who asked not to be identified because he was not authorized to speak to the media.

The U.S. military said militants firing rocket-propelled grenades ambushed an American patrol in eastern Baghdad late Sunday night. Fire from armed helicopters and an Abrams tank repulsed the attack, killing six of the gunmen, the statement said.

The government is demanding that al-Sadr disband his Mahdi Army, which has strongholds in Baghdad's sprawling Sadr City neighborhood, the port city of Basra and other locations in southern Iraq.

Elsewhere in Iraq, U.S. soldiers discovered a mass grave near Muqdadiyah, about 60 miles north of Baghdad, the military said Monday.

The grave site, which was unearthed Sunday, contained 20 to 30 badly decomposed bodies that appeared to have been buried nearly eight months, according to the statement. It said the remains would be moved to a nearby cemetery.

It was the latest in a series of mass graves discovered as U.S. and Iraqi troops clear former insurgent strongholds amid improved security, allowing stepped-up patrols.