Iraq's Asian Cup-winning hero Younis Mahmoud took centre-stage again as the Lions of Mesopotamia defeated big-hearted Palestine 2-0 to reach the quarter-finals on Tuesday.

The captain famously scored the winner in Iraq's 1-0 win over Saudi Arabia in the 2007 final, and he climbed for another towering header to put his side ahead on 48 minutes.

Mahmoud has been without a club for a year, and his rustiness showed when he missed a penalty in the second half. But a late Ahmed Yaseen strike made the win secure.

Iraq's win against debutants Palestine sets up a quarter-final grudge-match against arch-rivals Iran in Canberra on Friday.

Iraq dominated possession in a boisterous first half, which saw some tough tackling and a bloody nose for Iraqi Saad Abdulamaeer, but they couldn't find a way past a resolute Palestinian defence.

Left-back Dhurgham Ismael spurned the best opportunity of the half, blazing over from inside the box after Iraq had hit Palestine on the break with pace.

The match came to life at the start of the second half with Mahmoud wasting a good chance on 47 minutes before breaking the deadlock just moments later.

The targetman lept higher than anyone else to head the ball powerfully home from a corner, sending the large and vocal Iraqi support ballistic.

Iraq almost gave up their lead straight away when a slack pass at the back was pounced on by Palestine striker Ashraf Nu'man, who fired straight at goalkeeper Jalal Hassan.

On 58 minutes Mahmoud missed a penalty when Abudhammad got down to his left to push away a tame effort, after the referee spotted a shove on US-based Justin Meram.

It was a full-blooded affair but Iraq's number nine Yaseen put it beyond doubt with a powerful low drive two minutes from time.