Paraguay brought Iraq's fairytale Olympic run to a shuddering halt with a 3-1 win in the semi-finals of the men's soccer tournament on Tuesday.

Striker Jose Cardozo fired two first-half goals to stun a raucous section of around 3,000 Iraq fans in the northern Greek city of Thessaloniki.

Fredy Bareiro added a third in the 68th minute for Paraguay, who will face South American rivals Argentina in Saturday's final after the favourites swept past Italy 3-0 in Athens.

Substitute Razzaq Farhan pulled a goal back for Iraq in the 83rd minute, but it came too late to make any real difference to the outcome.

Iraq can still win only the second Olympic medal in the war-ravaged country's history if they overcome the Italians in the third-place match on Friday.

Their only previous Olympic medal was a weightlifting bronze at the 1960 Rome Games.

"I'm very proud of my team. It's great that the world got to see that we are not just people with AK-47s and rocket-propelled grenades. We also know how to compete in the Olympics," said Rasheed Rumayed, 24, who watched the match on a television set at a Baghdad sidewalk market surrounded by fruit and vegetables.

"It's still a great achievement even if we don't get a chance to win the gold," said Adnan Khadim, 26, watching the match at another sidewalk cafe in Baghdad.

"No other team in the world could have done half of what Iraq has done in the circumstances in which we are living."

Argentina too good for Italy

 Favourites Argentina beat Italy 3-0 to claim their place in the final earlier.

Goals by leading goalscorer Carlos Tevez, with a smart volley after 16 minutes, and Luis Gonzalez, with a thunderous shot on the run after 69, ensured the impressive Latin Americans of a comfortable passage before substitute Mariano Gonzalez scored with his first touch in the 85th to complete the scoring.

Argentina last appeared in the Olympic final when they were beaten by Nigeria at the Atlanta Games in 1996. They are seeking their first Olympic gold medal in the sport.