* Karrada bombing is deadliest by Islamic State in Iraq
* 37 people still missing
* Authorities say 40 arrested for planning attacks
* Justice ministry says five terror convicts executed (Iraq executes five convicted of terrorism, updates missing)
By Saif Hameed and Maher Chmaytelli
BAGHDAD, July 4 (Reuters) - The death toll from a suicide bombing in a Baghdad shopping district rose above 175 on Monday, fueling calls for security forces to crack down on Islamic State sleeper cells blamed for one of the worst-ever single bombings in Iraq.
Numbers rose as bodies were recovered from the rubble in the Karrada area of Baghdad, where a refrigerator truck packed with explosives blew up on Saturday night when people were out celebrating the holy month of Ramadan.
http://tmsnrt.rs/29dFtFG to see the location of the blast
By Monday evening, the toll in Karrada stood at 175 killed and 200 wounded, according to police and medical sources. Rescuers and families were still looking for 37 missing people.
Islamic State claimed the bombing, its deadliest in Iraq, saying it was a suicide attack. Another explosion struck the same night, when a roadside bomb blew up in popular market of al-Shaab, a Shi'ite district in north Baghdad, killing two people.
The attacks showed Islamic State can still strike in the heart of the Iraqi capital despite recent military losses, undermining Prime Minister Haider al-Abadi's declaration of victory last month when Iraqi forces dislodged the hardline Sunni insurgents from the nearby city of Falluja.
Abadi's Shi'ite-led government ordered the offensive on Falluja in May after a series of deadly bombings in Shi'ite areas of Baghdad that it said originated from the Sunni Muslim city, about 50 km (30 miles) west of the capital.
Falluja was the first Iraqi city captured by Islamic State in 2014, six months before it declared a caliphate over parts of Iraq and Syria. Since last year the insurgents have been losing ground to U.S.-backed Iraqi government forces and Iranian-backed Shi'ite militias.
"Abadi has to have a meeting with the heads of national security, intelligence, the interior ministry and all sides responsible for security and ask them just one question: How can we infiltrate these groups?" said Abdul Kareem Khalaf, a former police Major General who advises the Netherlands-based European Centre for Counterterrorism and Intelligence Studies think tank.
He said Islamic State, or Daesh, "has supporters or members everywhere - in Baghdad, Basra and Kurdistan. All it takes is for one house to have at least one man and you have a planning base and launch site for attacks of this type."
In a sign of public outrage at the failure of the security services, Abadi was given an angry reception on Sunday when he toured Karrada, the district where he grew up, with residents throwing stones, empty buckets and even slippers at his convoy in gestures of contempt.
He ordered new measures to protect Baghdad, starting with the withdrawal of fake bomb detectors that police have continued to use despite a scandal that broke out in 2011 about their sale to Iraq under his predecessor, Nuri al-Maliki.
The hand-held devices were initially developed to find lost golf balls, and the British businessman who sold them to Iraq for $40 million was jailed in Britain in 2013.
Abadi ordered that the fake devices be replaced by efficient detectors at the entrances to Baghdad and Iraq's provinces.
Later on Monday, the justice ministry announced in a statement that five people convicted of terrorism and sentenced to death were executed on Monday morning, bringing the total number of those executed on the same charges to 37 in the past two months.
"We refuse categorically all political or international interventions to stop the death sentence under the cover of human rights; Iraqi blood is above all slogans," it said, linking the timing of the executions to the Karrada bombing.
Iraqi intelligence services also announced on Monday the arrest of 40 "terrorists" suspected of forming a group to carry out attacks in Baghdad and the eastern Diyala province.
BUSY STREETS Karrada, a largely Shi'ite district with a small Christian community and a few Sunni mosques, was busy at the time of the blast as people were eating out and shopping late during Ramadan, which ends this week with the Eid al-Fitr festival.
As Iraq started observing three days of national mourning, rescuers continued digging through the rubble of a shopping mall believed to be the main target of the bombing, searching for bodies or possible survivors.
Three bodies were pulled out in the morning from the basement of the three-story Al-Laith mall, which was reduced to a skeleton of charred steel and concrete by the blast. Its glass facades were blown out and its internal divider walls collapsed.
Dozens of people gathered outside, many of them friends or relatives of missing. "I know my nephew is here because he called me to say he can't leave because of the fire in the building," said Mohammed al-Tai watching the rescuers at work.
"As Daesh retreats, it will shrink from so-called state and terrorist group to just terrorist group," said Baghdad-based security analyst Hisham al-Hashimi, author of "The World of Daesh".
That will require an increased response from intelligence and security services, he said, as well as cooperation from Iraq's Sunni Muslims, who have complained of marginalisation since the 2003 U.S. invasion to topple Saddam Hussein.
"Their input would be of utmost importance to unmask sleeper cells that could be operating from their areas," Hashimi said.
(Writing by Maher Chmaytelli; Editing by Larry King)
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