But it also indicates that the government of Prime Minister Nouri al-Maliki wants to retain a U.S. military presence in Iraq beyond the Dec. 31 deadline for the completion of the American military withdrawal.
U.S. officials in Washington reported that Baghdad has made a $1.5 billion down payment for the aircraft to be built on Lockheed Martin's production line at Fort Worth, Texas.
One of Maliki's advisers, Ali Moussawi, confirmed the sale Monday. But he gave no details, possibly because of the sensitivity of the issue at a time when U.S. forces are moving toward ending their presence in Iraq 8 1/2 years after the March 2003 invasion.
U.S. officials say Maliki, supported by minority Sunnis who fear domination by the majority Shiites, wants to keep a contingent of "instructors" to continue training Iraq's armed forces.
But he faces stiff opposition from Iranian-backed Shiite hard-liners who want all U.S. forces gone.
The F-16 contract is worth around $3 billion but with the inclusion of spare parts, weapons systems and training programs that could reach $4.2 billion.
At present, the Iraq air force has no fully trained combat pilots capable of operating supersonic strike aircraft, although a contingent of 10 pilots is training on F-16s with the U.S. Air Force.
The new contract will be a boon for Lockheed Martin and associated U.S. defense contractors at a time when they face deep cuts in military spending.
Iraqi commanders say they ultimately want 96 F-16s, enough for five squadrons deployed around the country at air bases built by the Americans after they invaded Iraq and toppled Saddam Hussein.
These facilities include the Balad base, 50 miles north of Baghdad, which covers 15 square miles, and Al-Asad, which sprawls over 25 square miles in western Anbar province.
In the fall of 2010, the Iraqis said they wanted to order 18 F-16s. In February, amid a wave of pro-democracy uprisings across the Arab world, Baghdad suspended the project and said it diverted a planned down payment of $900 million to providing food for millions of poor people.
Then in July, Maliki said they wanted 36 F-16s, double the number of aircraft originally planned, by 2020.
Now, with oil revenue boosted by a recent run of high prices, Maliki's trouble-plagued coalition has taken the plunge.
Iraq earned $7.31 billion from oil sales in July, the fifth consecutive month that revenue topped $7 billion.
U.S. Air Force Brig. Gen. Russell Handy, commander of U.S. air forces in Iraq, said Sept. 14 that Baghdad is looking at acquiring an initial batch of 36 F-16s, enough for two squadrons.
With U.S. military hardware bought by Baghdad likely to be flowing into the country for years to come, along with attendant specialists and trainers, Maliki may face stiff opposition from Iranian-backed hard-liners.
They oppose any U.S. military presence in Iraq after the Dec. 31 withdrawal deadline.
Maliki insists the Iraqi Parliament doesn't need to be consulted on keeping U.S. troops in the country if they are linked to "training missions."
Moves to give Iraq's new air force a combat punch are acquiring a new urgency as the U.S. withdrawal moves toward completion, with some 45,000 U.S. troops still deployed in the country.
Iraq's air force remains weak with no combat capabilities, beyond some light counterinsurgency capability through arming reconnaissance aircraft with small bombs or rockets.
But it takes years to develop a coherent combat effectiveness and an integrated operational system capable of protecting the country, particularly its rich oil and gas reserves and infrastructure that provide 90 percent of the government's revenue.
Production times invariably lag and depending on the delivery times of the initial batch of F-16s, it's unlikely that Iraq will have any operational air combat units until 2015-16 at the earliest.
Lockheed Martin's Fort Worth plant has some 60 F-16s in the production pipeline, with the last of these scheduled for delivery in 2013.
Right now, the Iraqi air force has some 160 aircraft and helicopters, mainly transports, reconnaissance and propeller-driven training aircraft.
In the meantime, Iraq will continue to depend to a large extent on U.S. air power for protection.