Iraqi authorities arrested a British contractor Sunday over the shooting deaths of two co-workers in Baghdad's protected Green Zone. The suspected gunman could be the first Westerner to face an Iraqi trial on murder charges since a security pact lifted the immunity that had been enjoyed by foreign contractors for most of the war.

The gunman shot his colleagues — one British and one Australian — during a quarrel, then he wounded an Iraqi while trying to flee their compound inside the vast area that is sealed off from the rest of the capital, Iraqi officials said.

"It started as a squabble," Iraqi military spokesman Maj. Gen. Qassim al-Moussawi told The Associated Press. "The suspect is facing a premeditated murder charge. The matter is now in the hands of Iraqi justice."

He said the suspect was being held at an Iraqi police station in the Green Zone.

The Green Zone houses the U.S. and British embassies as well as the Iraqi government headquarters. The U.S. military turned over security of the area over to Iraqi forces when the security pact took effect on Jan. 1 but many foreign organizations maintain separate guarded compounds within the area.

The British Embassy said two Britons were in Iraqi custody in connection with Sunday's shooting.

But Interior Ministry spokesman Maj. Gen. Abdul-Karim Khalaf maintained that only one suspect was being held, identifying him as Danny Fitzsimmons. The conflicting reports could not immediately be reconciled.

Patrick Toyne-Sewell, a spokesman for ArmorGroup Iraq, confirmed that two employees of the group identified as Paul McGuigan of Britain and Darren Hoare of Australia were killed early Sunday in a firearms incident.

"We are working closely with the Iraqi authorities to investigate the circumstances of their deaths," he said, adding that their relatives had been informed.

The U.S. Embassy referred questions to British, Australian and Iraqi officials.

The shooting occurred in the compound operated by Research Triangle Institute, the headquarters of two U.S.-funded non-profit groups — the National Democratic Institute and the International Republican Institute.

A U.S.-Iraqi security pact, which took effect on Jan. 1 and replaced the U.N. mandate for foreign forces, lifted the immunity that had been enjoyed by foreign contractors in Iraq for much of the six-year war.

The move was provoked by outrage over a deadly September 2007 shooting in Baghdad involving another North Carolina security firm, Blackwater Worldwide, now known as Xe.

The agreement also set a timeline for the withdrawal of American forces from urban areas by the end of this month and from the entire country by 2012.

Sunday's incident is the second case involving foreign contractors in less than three months.

In the first case, U.S.-backed Iraqi forces detained five Americans on June 3 in connection with an investigation into the stabbing death of a fellow contractor.

But the five were later released into U.S. custody and Iraqi authorities said their case did not involve the killing of James Kitterman of Houston, who was found dead in his car in the Green Zone on May 22.

Foreign contractors have long been accused by Iraqis and others of unruly behavior.