(CNSNews.com) - Australia has played an important role in training the new Iraqi army, and Iraqi soldiers returned the compliment Wednesday by rescuing an Australian hostage terrorists had threatened to kill.

Iraqi forces rescued engineer Douglas Wood and an Iraqi hostage, Saed Rasul, "while conducting a planned cordon-and-search operation for a weapons cache" in a north-western Baghdad neighborhood, the U.S. military said in a statement.

Three suspected terrorists were captured after an exchange of fire during which no injuries were sustained.

"It's a positive sign for the future of Iraq that Iraqi soldiers played a key role in my release," engineer Douglas Wood said in a statement, released by Nick Warner, the head of an Australian emergency response team set up in Baghdad after the 63-year-old was kidnapped.

Prime Minister John Howard, speaking in parliament in Canberra, said Iraqi forces had conducted the operation, "in cooperation in a general way with force elements of the United States."

He expressed the nation's thanks to "our Iraqi and American friends."

The Iraqi troops involved in Wednesday's rescue were trained by American forces, according to reports from Baghdad. But some of their colleagues have benefited from Australian trainers.

Wood, who lives in California and is married to an American, was captured on April 30 - the first Australian civilian to be held by terrorists in Iraq and threatened with death unless his government withdrew forces from the U.S.-led coalition.

Arabic television broadcasts footage of Wood being held by armed men, pleading for his life and urging Australia and the U.S. to withdraw their troops from the country.

A second video clip released five days later showed a bruised and shaven-headed Wood with two machine guns held to his head, and contained an ultimatum for troops to be pulled out within 72 hours.

The kidnappers, a group calling itself the Shura Council of the Mujahedeen of Iraq, switched its focus in late May, demanding instead "a very, very large ransom," Warner told a briefing in Baghdad.

"I just want to confirm that at no time was any ransom paid by the Australian government, nor were there any political or other concessions made by the Australian government to those holding Mr. Wood," he said.

As many as 200 foreigners have been kidnapped in Iraq since the end of the U.S.-led war -- backed by British and Australian forces -- which toppled Saddam Hussein. More than 30 have been killed, some in gruesome fashion by terrorists who then posted graphic footage on Internet websites.

Foreign Minister Alexander Downer said the freed hostage was well, but mentally exhausted.

Downer thanked a senior Australian Muslim cleric, Sheikh Taj el-Din al Hilaly, who earlier traveled to Iraq in a bid to negotiate Wood's release, and also praised Wood's family, calling them "courageous, great stalwart Australians"

Howard, too, in his parliamentary statement, focused on the "resolve and courage" of Wood's family, saying "their understanding of the difficulty of this whole incident for all involved has been ... very deeply impressive."

Wood's two brothers made appeals on Arabic television and set up a website to publish statements and information aimed at highlighting what they said was their brother's humanitarian and caring nature and background.

In contrast to some other Iraqi hostage situations, the family members avoided publicly criticizing their government for its involvement in Iraq, or for its refusal to give in to the kidnappers' demands.

At a press conference Thursday, one of the brothers, Malcolm Wood, thanked Howard and Downer "for their unswerving commitment throughout this crisis."

Australia recently increased the size of its troop deployment to 1,370, sending an additional 450 to the southern Al Muthanna province.

There they are involved in training the Iraqi Army in Al Muthanna, a task "essential to the Iraqis in being able to take over the internal and external defense of their country," the defense ministry said.

The Australians also provide security for Japanese military engineers whose ability to defend themselves is restricted by their country's pacifist constitution.

A separate Australian training team is also providing logistics training to the Iraqi Army, including officer training, transport management, maintenance, storage and distribution operations.

"The Australians have formed a strong bond with the Iraqi officers and soldiers they have trained," deputy army chief Maj.-Gen. Ian Gordon said earlier this year.

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