Cities were like ghost towns as most of the population waited nervously at home to see if it would be safe enough to leave on Sunday to take part in the first election since US-led forces ousted Saddam Hussein in April 2003.
Iraq's land borders and Baghdad airport were closed as authorities sought to counter threats to the election by Abu Musab al-Zarqawi, who has replaced Saddam as Iraq's most feared man.
A dusk-to-dawn curfew and a ban on travel between provinces were imposed and the government on Saturday extended a state of emergency for one month.
But the measures could not prevent the attack on the US embassy compound, housed in one of Saddam's gigantic palaces inside the heavily fortified Green Zone and a symbol of the American presence in Iraq.
"A single round hit the US embassy annex compound. There are two fatalities and four wounded. They are all American," an embassy source said. There were no further details on the US fatalities.
With international attention focused on the turnout for the election, to be able to judge its credibility, the president reinforced fears that the climate of fear could put people off turning out to vote.
"We hope that everybody will participate, but most of the Iraqi people will not participate. Most of them will not take part because of the security situation and not because they want to boycott the elections," he said.
On top of the daily attacks and intimidation from Zarqawi and similar groups, some leaders of the once-dominant Sunni minority have called for a boycott.
In Khanaqin, a town near the border with Iran, a suicide bomber killed four adults, a child and three Iraqi soldiers at a police security co-ordinating centre, police and the US military said.
Four police were shot dead overnight on the road between Baiji and Shorgat, about 200 kilometres north of the capital, police said. Insurgents attacked a patrol at Salman Pak, just south of Baghdad, killing two policemen.
US forces clashed with insurgents in Ramadi, west of Baghdad, and one civilian was killed, a hospital doctor said. An Iraqi soldier was killed by a mortar in As-Suwayrah south of Baghdad. A soldier and a policeman were killed in clashes with insurgents in Samarra, to the north, while a US soldier was killed in a bomb blast in Baghdad.
US President George W. Bush and UN Secretary General Kofi Annan both appealed for Iraqis to brave the violence and vote.
Iraqi exiles, many of whom fled Saddam's rule, went into the second day of their chance to vote in 14 countries across the world.
Organisers said however that less than 30 percent of the 280,000 who put their names down cast their ballots on the first day.
Iraq's first multi-party election for more than 50 years could see the majority Shia community take a leading role in governing an Arab country for the first time in centuries.
Despite the war-like atmosphere of blast walls, razor wire and rattling army vehicles patrolling empty streets, many Iraqis were upbeat about choosing a national assembly to write a new constitution.
The pivotal test for the election will be the central and northern Sunni regions, where an entrenched insurgency, rooted deep in the population, threatens to undermine the vote.