The American military says a U.S.-Iraqi patrol has been ambushed while distributing grants to Iraqi businesses near the northern city of Kirkuk.

Iraqi officials say two civilians were killed when the Americans returned fire, but the U.S. military says those killed were enemy fighters.

The shooting comes as tensions have risen over a deadly U.S. raid in southern Iraq that the Iraqi government says violated a security agreement.

U.S. spokesman Maj. Derrick Cheng says several people launched grenades and began shooting Wednesday as the patrol was handing out micro-grant money to stimulate small businesses in the town of Riyadh.

He says reports indicate "two enemy killed and one wounded." He says one American was also wounded.