A British soldier was confirmed dead today along with four Americans and at least 70 Iraqis, in a day of carnage and chaos which also saw Iraq's main Sunni block quit the country's fragile Government.

The carnage overshadowed the day's one positive political development - Saudi Arabia's decision to develop diplomatic relations for the first time with the US-backed Iraqi Government.

Just minutes after Prince Saud al-Faisal, the Saudi Foreign Minister, made the announcement - following a $20bn arms deal with the US yesterday - a suicide bomer driving a minibus blew up in a busy square in central Baghdad, killing 17, injuring 32, and leaving a huge crater in one of the Capital's busiest squares.

Hours later, a suicide bomber driving a fuel tanker blew his vehicle up near a petrol station in the Mansour neighbourhood in western Baghdad, killing 50 and wounding 60.

Amid the security deterioration, the US military confirmed that four of its soldiers had died and a further five were injured by a roadside bomb in eastern Baghdad yesterday, while the Ministry of Defence said a similar roadside bomb in Basra had taken the life of one British soldier from the 2nd Royal Tank Regiment.

Iraq's Shia-run Government also moved a step closer to collapse when its biggest Sunni political party, the Accordance Front, announced it was leaving the coalition - effectively destroying hopes of anything resembling a Shia-Sunni axis developing in the country.

The resignation of the Front, whose leadership claimed that they had not been consulted sufficiently by Prime Minister Nouri al-Maliki on security, caused a political crisis which senior Iraqi figures said was unrivalled over the last two years.

Barham Salih, the Deputy Prime Minister, who is Kurdish, told the Reuters news agency: "This is probably the most serious political crisis we have faced since the passage of the constitution. If unresolved, the implications are grave."

Deborah Haynes, the Times correspondent in Baghdad, said: "Today's withdrawal is another sign that the Iraqi Government is in crisis. In particular, it will have a very negative impact on any remaining claims by the Iraqi Government that it represents a cross-section of the Iraqi people."

As well as five former Government ministers, who have been withdrawn from their posts, the Accordance Front has 44 Parliamentarians who will no longer sit with the administration. Iraq's Parliament is currently on a month's summer recess.

Iraq's latest security and political crisis meant that the announcement by the predominantly Sunni Saudi Arabia this morning that it would be normalising relations with Mr al-Maliki's mostly Shia administration was overshadowed.

Announcing its intention to send a permanent diplomatic mission to Baghdad in a press conference with visiting Condoleezza Rice, the US Secretary of State, the Saudi Foreign Minister, Prince Saud al-Faisal, said the kingdom would "explore how we can start an embassy in Iraq." He added: "We expressed our hope that we will work closely with Iraq regarding security aspects, especially terrorism."

Saudi Arabia's change of heart came less than 24 hours after the Bush Administration pledged the Sunni kingdom $20 billion of weapons.

In talks yesterday in Egypt, Ms Rice and Robert Gates, the US Defence Secretary, had made it clear to a number of Gulf state foreign ministers that they were expected to do more to battle the insurgency in Iraq and combat extremism in return for its arms deal, which also included the renewal of a $13bn deal with Egypt. Israel was also pledged $30bn over a decade.

Ms Rice thanked her Saudi host for agreeing to open diplomatic ties with Iraq at today's press conference in the port city of Jeddah, calling it "an important step." Saudi Arabia's Sunni leadership has repeatedly delayed opening an embassy in Baghdad in an apparent fear that Iraq's Shia-led Government did not have the interests of the country's Sunni majority at heart.

Ms Rice this afternoon continued her Middle East trip by visiting Israel.

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