By Paul Tait

BAGHDAD (Reuters) - Iraq said on Monday no action would be taken against U.S. private security firm Blackwater over a shooting in which 11 people were killed until after a joint investigation with U.S. officials.

Prime Minister Nuri al-Maliki had vowed to freeze the work of Blackwater, which guards the U.S. embassy in Baghdad, and prosecute its staff over the shooting eight days ago which he called a crime. But Iraq has since appeared to soften its stand.

The shooting in western Baghdad angered many Iraqis, who see the thousands of private security guards working throughout Iraq as private armies who act with impunity, immune from prosecution under an order drafted after the 2003 U.S.-led invasion.

Government spokesman Ali al-Dabbagh said that Blackwater's future would rest on the outcome of a joint inquiry by Iraqi and U.S. officials into the conduct of private security companies.

The U.S. embassy is conducting a separate inquiry into the circumstances of the shooting, in which Blackwater guards are accused of opening fire without provocation. Blackwater says its guards reacted lawfully to an attack on a U.S. convoy.

"The government will take the necessary legal measures against Blackwater depending on the investigation's results," Dabbagh said in a statement issued from New York, where Maliki will attend the U.N General Assembly. "The souls of Iraqis and their dignity are above everything else for us."

U.S.-Iran tensions simmered anew on Monday when Iran closed its border with Iraq's semi-autonomous Kurdistan after U.S. soldiers last week arrested an Iranian accused of smuggling roadside bombs into Iraq and training foreign fighters.

"The border will remain closed until our colleague's unconditional release," Iran's Kurdistan province governor Ismail Najjar told Iran's semi-official Mehr news agency.

Tehran says the man is a diplomat who was in northern Sulaimaniya with a trade delegation. Tensions were already high between the two bitter rivals after U.S. forces arrested five other Iranians earlier this year in the Kurdish city of Arbil.

Washington accuses Shi'ite Iran of training and supplying Shi'ite militias in Iraq. Tehran rejects the charge and blames sectarian violence in Iraq, which has killed tens of thousands of Iraqis, on the U.S.-led invasion in 2003.

Also on Monday, a suicide truck bomber killed six people on the road between northwestern Tal Afar and Mosul, police said.

COLD BLOOD

Soon after Sunday's shooting, Maliki said he would not allow Iraqis to be killed in cold blood and suggested the U.S. embassy should stop using North Carolina-based Blackwater.

But U.S. Secretary of State Condoleezza Rice later promised a full review of how U.S. security details are conducted and Iraqi security officials have since echoed her words in saying private guards perform important work in Iraq.

An Iraqi security official said on Sunday their expulsion would leave a "security vacuum".

Dabbagh said the joint committee investigating the incident had held its first meeting on Sunday and that its work should be done quickly "because there is an anger in the streets in Iraq".

He said that companies like Blackwater were not entitled to act without accountability despite the importance of their work.

Iraq is reviewing the status of all private security firms, which employ between 25,000 and 48,000 guards, while the Interior Ministry is drawing up legislation giving it wider powers over security contractors.

Foreign security firms operate in Iraq under a law, issued by U.S. administrators after the 2003 invasion to topple Saddam Hussein, which granted them immunity from prosecution and has not been formally revoked. Many do not have valid licences.

In Baghdad, the trial of Saddam's cousin Ali Hassan al-Majeed, widely known as "Chemical Ali", and 14 others on charges of crimes against humanity resumed on Monday.

Majeed, once one of the most feared men in Iraq, and the other defendants were charged for their role in crushing a Shi'ite uprising after the 1991 Gulf War. Prosecutors say up to 100,000 people were killed.

Majeed was sentenced to death earlier this year for masterminding a genocidal military campaign against Kurds in northern Iraq in 1988 that killed tens of thousands.

(Additional reporting by Parisa Hafezi in Tehran and Aws Qusay in Baghdad)