Muslim leaders must condemn the beheading of the American hostage Nick Berg in Iraq, the former Archbishop of Canterbury Lord Carey said today.

The peer, who has been accused of bigotry for accusing Islamic figures of not doing enough to condemn suicide bombings, said: "The decapitation of that American is quite awful, barbaric.

"It needs to be condemned by everyone. I want to hear Muslim leaders around the world who I know repudiate that kind of action," he told the BBC Radio 4 Today programme.

Western leaders have condemned the execution of Mr Berg, 26, who is seen being killed by his hooded captors. The video appeared on a radical Islamic web site yesterday.

Amid Mr Berg's screams, and his captors' shouts of "Allahu Akbar (God is greatest)", a man sawed off his head before holding it in front of the camera, claiming that the act was in revenge for abuse of Iraqi prisoners by US troops.

Tony Blair's spokesman said today: "This was a truly barbaric act and there is no justification for this kind of act in a civilised world."

Scott McClellan, the White House spokesman, said of the beheading: "It shows the true nature of the enemies of freedom. They have no regard for the lives of innocent men, women and children. We will pursue those who are responsible and bring them to justice."

Mr Berg's death recalled the beheading of Daniel Pearl, the Wall Street Journal reporter killed by Islamic militants in Pakistan in February 2002. Both Mr Berg and Mr Pearl were Jewish.

Mr Berg, a self-employed communications engineer from West Chester, Pennsylvania, was planning to return from his second unsuccessful search for work in Iraq just before he disappeared on April 9.

On the streets of Baghdad Iraqis spoke out against the grisly killing but said that it was a natural reaction to the torture of prisoners by the occupation forces and feared that worse was to come.

"As Muslims we can't accept it, but we don't blame them. It was a natural reaction to the human rights violations we have seen at Abu Ghraib. What the Americans are doing now is terrible," said a 45-year-old woman dentist.

Falah Faisal, 30, a restaurant worker, said: "Since the man came here to do something good for Iraq, it was shameful. Whoever comes to serve this country will be treated kindly by Iraqis, but I blame the Americans for being behind such activities.

Arkan Mohammad, a cleric at Baghdad University, said: "The Americans killed hundreds in Fallujah in retaliation for the mutilation of the four Americans and now those people are killing an American in retaliation for the torture of prisoners.

"Someone has to do something to stop the cycle of violence from going on and on."

Even in the Baghdad Sunni Muslim stronghold of Adhamiya, where there is fierce opposition to the occupation, many residents were appalled by the decapitation. "We denounce this act. No-one can accept the killing of another human being in this horrible way," said Yassir Saleh, a 30-year-old barber.

But he too pointed to a tide of violence that has swept the country since the fall of Saddam Hussein. "Sometimes I really can't understand the logic of what is happening, all the violence that I could have never imagined would take place in my country," he said.

Pictures of Mr Berg in the moments before his execution were carried around the world today on the front-pages of newspapers and in television footage, overshadowing a scandal over the abuse of Iraqi prisoners by US and British troops that has inflamed the Arab world.

Iranian radio accused Western media of using the slaying to distract attention from the abuse of prisoners. Al-Jazeera and Al-Arabiya, the big two satellite networks, broadcast edited snippets of the video.

"The news story itself is strong enough," said Jihad Ballout, spokesman for Al-Jazeera. "To show the actual beheading is out of the realm of decency."

Egypt's leading daily, Al-Ahram, ignored the beheading. An editor said that the news came too late for the paper to confirm the video's authenticity with the US Government.

Newspapers in Syria, where the Government controls the press tightly, did not report the execution at all.

Five of Kuwait's seven dailies published the report with photographs on their front pages. The other two published brief reports. Al-Siyassah ran two photos, including one with a masked militant holding up Mr Berg's severed head.