BAGHDAD, Iraq — A headless body found in Iraq and handed over to U.S. officials on Wednesday is that of Jack Hensley (search), one of two Americans taken hostage last week, the State Department confirmed.

"The FBI has confirmed that the body found today in Baghdad is that of U.S. citizen Jack Hensley. We condemn in the strongest possible terms this dispicable act of terrorism," a State Department spokeswoman said. 

"This is a terrible tragedy that illustrates the ruthless nature of those who committed this crime. We extend our deepest condolences to Mr. Hensley's family in their time of loss."

Hensley was an American worker from Marietta, Ga., who would have been celebrating his 49th birthday today. He had come to Iraq to support his wife and 13-year-old daughter but was kidnapped along with two other contractors last Thursday.

The Hensley family was given the news Wednesday, said Cobb County spokesman Robert Quigley outside of Hensley's Marietta, Ga., home.

"They killed the wrong man," Hensley's brother, Ty Hensley, told FOX News on Wednesday. "They killed my t-ball coach. They killed a volunteer on a rescue squad. They killed a man who worked three jobs to keep his family going."

Family members have established a fund for Jack Hensley's daughter, Sara, at www.jackhensley.org.

Outside Hensley's suburban home, a trickle of friends came Tuesday to give condolences to his wife and daughter. One neighbor delivered food wrapped in foil.

"Jack's agenda was to help the people of Iraq," said Ken Cole, a 19-year friend.

On Tuesday, an Islamic Web site claimed that Hensley had been decapitated — the second American in as many days to be killed.

Hensley's body was found Wednesday with its severed head in a black plastic bag in Baghdad's Amiriya neighborhood, said Col. Adnan Abdul-Rahman, an official with the Interior Ministry.

Allawi: No Release Planned

Meanwhile, Interim Iraqi Prime Minister Ayad Allawi (search) said his government is not negotiating with terrorists who have beheaded two hostages and threatened a third hostage and that no release of female detainees was imminent. Officials at the U.S. Embassy also said a high-profile prisoner and another woman would not be released immediately.

One of the demands that the kidnappers had made was for all female Iraqi prisoners to be freed. Another man, a Briton, is also being held captive pending the same demand.

Earlier Wednesday, Iraqi officials suggested they were going to release Rihab Rashid Taha (search) on bail. Taha, a scientist who became known as "Dr. Germ" (search) for helping Iraq make weapons out of anthrax, and Huda Salih Mahdi Ammash (search), a biotech researcher known as "Mrs. Anthrax" (search), are the only two Iraqi women held in American custody, according to the U.S. military.

But in a telephone interview with The Associated Press from New York, Allawi said that his government was, however, reviewing the status of its detainees, a process he said began three weeks ago.

He said any releases have not yet been decided and that he himself has the final decision on any prisoners who should be released. He said he expected to look at some cases when he returns to Baghdad after meetings in New York and Washington this week.

"We have not been negotiating and we will not negotiate with terrorists on the release of hostages," he said.

Iraqi officials said the decision had been made by Iraqi and coalition authorities, and officials were also considering whether to also release Ammash, a former member of the Baath Party.

However, Lt. Col. Barry Johnson, a U.S. military spokesman, said he was not aware of a decision to release Taha. He said a group of Iraqi male detainees had been previously scheduled to be released Wednesday from Abu Ghraib prison (search).

"There is an ongoing process that has been in place for some time to review the status of high-value detainees," Johnson said. "All I can say is that this process continues."

Third Hostage in Peril

The brother of the British hostage, Kenneth Bigley (search), recorded a message to be broadcast on Arabic language TV station Al-Jazeera urging his captors to free him in response to the expected release of the Iraqi woman.

"They need to see it on television, they need to see females walking free," said Paul Bigley. "Hopefully they will pick this up on the media and show that they have a gram of decency in them by releasing Ken."

The announcement came after Tawhid and Jihad (search), an Al Qaeda-linked group led by terror mastermind Abu Musab al-Zarqawi (search), claimed Tuesday to have killed Hensley, saying their demands for the release of Muslim women had not been met.

On Monday, the group released gruesome footage of the beheading of fellow American hostage Eugene Armstrong (search). His body was discovered Monday just blocks from where he lived, western officials and witnesses said, raising the possibility that the hostages never left Baghdad.

"The nation's zealous sons slaughtered the second American hostage after the end of the deadline," the statement said. It was posted on an Islamic Web site and could not immediately be verified.

Several hours passed after the initial announcement with the promised video proof failing to appear. On Monday, by contrast, the video of Armstrong's killing was posted within an hour of the initial statement claiming he was dead.

Late Tuesday, an expanded version of the statement announcing Hensley's death appeared on a different Islamic Web site and warned that Bigley, 62, would be the next to die unless all Iraqi women are released from two U.S.-controlled prisons, Abu Ghraib and Umm Qasr.

Hensley, Armstrong and Bigley were kidnapped last Thursday from a house that the three civil engineers shared in an upscale Baghdad neighborhood.

Bush: Say No to Thugs, Terrorists

President Bush took a hard line during his speech to the U.N. General Assembly in New York on Tuesday, when he said: "We will not allow these thugs and terrorists to decide your fate and to decide our fate."

Tawhid and Jihad — Arabic for "Monotheism and Holy War" — has claimed responsibility for killing at least seven hostages, including another American, Nicholas Berg (search), who was abducted in April. The group has also said it is behind a number of bombings and gun attacks.

A host of militant groups have used kidnappings and bombings as their signature weapons in a blood-soaked campaign to undermine Allawi's interim government and force the United States and its allies out of Iraq. The violence has already persuaded companies to leave Iraq, hindered foreign investment, led firms to drop out of aid projects, restricted activities to relatively safe areas and forced major expenditures on security.

More than 130 foreigners have been kidnapped in Iraq, and at least 26 of them have been killed. Many more Iraqis have also been seized in the chaos since Saddam Hussein was ousted last year, in many cases for ransom.