KIRKUK, Iraq—Minutes after a suicide bomber killed 25 people, hundreds of angry Kurds stormed the headquarters of an ethnic Turkish group in this northern Iraqi city and torched the building and nearby parked cars.

The Kurds blamed Turkomen, the city’s ethnic Turkish minority, for the bombing. Weeks later, the husks of eight burned-out cars bear witness to the ferocity of emotions generated by the crisis over who will run Kirkuk, the center of Iraq’s northern oil fields.

The fate of Kirkuk, where an estimated 850,000 Kurds, Turkomen and Arabs uneasily coexist, is a litmus test for the ability of Iraq’s ethnic and sectarian leaders to compromise on critical issues. At stake is the country’s ability to preserve its recent decline in violence with genuine national reconciliation.

“Kirkuk is a test case for a stable Iraq,” Soner Cagaptay, director of the Turkish program at the Washington Institute for Near East Policy, said Friday. “If Kirkuk remains stable, Iraq will become more stable. If Kirkuk blows up, Iraq might fracture along ethnic and sectarian lines.”

The Kurds want to annex Kirkuk and surrounding Tamim province into their self-ruled region in northern Iraq.

Most Turkomen and Arabs want the province to remain under central government control, fearing the Kurds would discriminate against them.

But for the Kurds, who consider Kirkuk their ancestral capital, no issue is more important than gaining control of the province.

Rallies to press that demand have drawn thousands of people daily. It was at the beginning of one of these demonstrations, late one morning on July 28, that the suicide bomber struck. Startled protesters ran for cover in nearby buildings, some still holding up the banners and Kurdish flag, a yellow sun against red, white and green stripes.

Dozens of angry Kurds then charged the Turkomen headquarters, leaving three Turkomen injured. But U.S. and Iraqi authorities later blamed al-Qaida in Iraq—not the Turkomen—for the bombing, which killed 25 Kurds and wounded 187.

Much is at stake in Kirkuk. Without a deal acceptable to the Kurds, it will be difficult to get Kurdish cooperation on a range of issues, including a new oil law which the Kurds have blocked for more than a year.

But any power-sharing agreement must also be accepted by the Arabs and the Turkomen, the country’s third largest ethnic group, if the U.S. and its Iraqi allies hope to achieve stability in the north, where al-Qaida and other extremist groups remain active.

Kurdish lawmakers blocked passage this month of a bill calling for provincial elections—a major U.S. goal—because the original legislation contained a power-sharing deal including Kurds, Turkomen and Arabs.

Nezhet Abdulgani, an official of the Iraqi Turkomen Front whose offices were attacked in the July 28 riot, warned there could be “worse days ahead” as politicians wrestle with the Kirkuk issue.

“The crisis is serious, because the Kurds can hold up any legislation they don’t like, such as the electoral law,” said Joost Hiltermann, Middle East director of the International Crisis Group. “It illustrates the importance of Kirkuk as an unresolved issue in undermining political progress in Iraq.”

The United States and the United Nations are trying to broker a compromise. The parliament reconvenes Sept. 9 after a summer recess.

“Kirkuk is a key both for unity and division,” said Mohammad al-Khalid al-Jeburi, an Arab member of the provincial council for Tamim province, of which Kirkuk is the capital. “If you turn it toward division, it could divide entire Iraq. If you turn it toward unity, then Iraq will be in cohesion.”

Ethnic tensions simmer beneath Kirkuk’s outward calm.

Turkomen try not to look at Kurdish police, who patrol the city in trucks with heavy machine guns. Kurds are in full control of not only the city police force, but also municipal offices and the provincial council.

There are no reliable statistics to reflect the dramatic demographic changes after the war but the Kurds now appear to make up at least half of the population, with Turkomen being the second largest ethnic group. Arabs are the third largest group and an Assyrian population is dwindling.

Neighborhoods have long been divided along ethnic lines. Turkomen, who control much of the commerce, dominate in the city center, including the ancient citadel where men play dominos in the shade to escape the stifling summer heat.