(Adds U.S. general's comments)

By Waleed Ibrahim

BAGHDAD, Nov 22 (Reuters) - Al Qaeda militants killed at least eight members of a neighbourhood police unit in southern Baghdad on Thursday, raking them with machinegun fire from a stolen Iraqi army vehicle, police said.

Separately, police said insurgents fired 10 mortar bombs at Baghdad's heavily fortified Green Zone just before dusk, in attacks coinciding with the U.S. Thanksgiving holiday.

A Reuters witness said he saw what appeared to be a body hanging from a damaged minibus in the zone, which houses the U.S. embassy and many government ministries. Police said there were casualties, but had no details.

The spike in violence ran against the trend of a sharp drop in attacks in recent months.

Al Qaeda in Iraq militants opened fire on a neighbourhood police patrol in the Hawr Rajab area of Baghdad, a mainly Sunni Arab area, approaching in at least one of two Iraqi army "humvees" they stole after shooting at least two Iraqi soldiers.

An Interior Ministry official confirmed that eight "Awakening Council" police patrol members had been killed. He said three Iraqi soldiers were killed and another three were wounded, and that two al Qaeda gunmen had also been killed.

The U.S. military said in a statement that two al Qaeda fighters were killed and two wounded when helicopters attacked a van being used by the militants in the attack. It said a U.S. F-16 warplane then dropped a 500-pound bomb on the vehicle.

Mortar and rocket attacks on the Green Zone were almost a daily occurrence earlier this year but have fallen off dramatically, along with overall declines in levels of violence in Baghdad and elsewhere.

The falls in attacks have been attributed to a "surge" of 30,000 extra U.S. troops, which became fully operational in mid-June, and the growing use of neighbourhood police units.

Mainly Sunni Arab tribal sheikhs have been organising young men into the local police units, known as concerned local citizens, to drive out Sunni Islamist al Qaeda.

In a Thanksgiving message, Lieutenant-General Raymond Odierno, the number two commander of U.S. soldiers in Iraq, said "remarkable progress" had been made on the security front.

"We've now had more than 21 straight weeks of declining violence ... There is a renewed sense of optimism on the streets of Iraq and people around the world are rethinking what's possible here," he said in a letter to U.S. troops.

VEHICLES SEIZED

Police at Baghdad's Yarmouk hospital said the two Iraqi army "humvee" vehicles had been seized at the start of the attack at Hawr Rajab. The police patrol did not challenge the occupants because they took them for soldiers.

The bodies of eight of the patrol and two soldiers were taken to the Yarmouk hospital in western Baghdad, Iraqi police said. Another four were wounded.

Reuters Television footage showed several coffins being loaded onto the back of a police truck to be taken to hospital. Another was tied to the top of a dilapidated car.

A young woman and two toddlers, one of them crying, sat on the ground next to one simple wooden coffin.

Separately, Iraqi soldiers supported by U.S. forces killed 19 al Qaeda fighters north of the city of Baquba, Major-General Abdul-Karim al-Rubaie, the head of Iraqi military operations in Diyala province northeast of Baghdad, told Reuters.

The al Qaeda fighters were killed in an area controlled by the al Qaeda-linked group Islamic State in Iraq, he said. Two members of a neighbourhood police unit there were killed in the operation and another three were wounded.

The neighbourhood patrols, backed by the U.S. military as part of a counter-insurgency strategy, were pioneered last year in western Anbar, once the most dangerous province, and are spreading through other areas.

(Additional reporting by Wissam Mohammed and Dean Yates; writing by Paul Tait, editing by Andrew Roche)

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