Captain Younus Mahmood said Iraq could move forward with confidence after emerging star Ali Adnan's double earned a 3-1 upset of defending Asian Games champions Japan.
Adnan, the Asian young footballer of the year, scored twice in the second half to break a 1-1 deadlock at half-time and place Iraq top of Group D late on Wednesday.
Japan's harassed defence failed to catch the 20-year-old defender as he met a cross early in the second half and calmly put the ball past goalkeeper Ayumi Niekawa. Niekawa was also unable to stop Adnan's 71st-minute free kick from outside the penalty area that sealed a deserved victory.
The defeat should not stop Japan qualifying for the second round. The 2010 champions will face Nepal in their final group game on Sunday.
"Of course for the national team of Iraq I think this game against Japan is very important," said Mahmood.
"I think this is good for the young players for them to win against Japan so in the future they won't be afraid when they meet a strong team like Japan."
South Korea, who dearly want to take the title on home territory, added a second win in Group A, 1-0 over Saudi Arabia with Kim Seung-Dae scoring the only goal in Ansang. Malaysia beat Laos 4-0 earlier.
In Group C, Palestine beat Tajikistan 2-1, just hours after one of the team's players was accused of groping a woman worker in the athletes' village. Group favourites Oman managed only a 3-3 draw with Singapore, having squandered a 3-1 lead, in the group's other game in Hwaseong.
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Iraq's match-winner, who plays with Caykur Rizespor in Turkey's Super League, grabbed international attention last year when he scored an injury time equaliser against England in the Under 20 World Cup. His performances earned him Asia's young player of the year award in November.
The son of Adnan Kadhim, who helped Iraq win the Asian Youth Championship in 1977, and nephew of one-time Iraq international goal-scoring record holder Ali Kadhim, has since been linked to several European clubs.
Adnan was behind a series of assaults on the Japanese goal that made a shock result look increasingly likely.
His 12th-minute free kick was badly cleared by the Japanese defence allowing Humam Tareq Faraj to fire Iraq into the lead.
Iraq maintained the pressure and Niekawa tipped another Adnan free kick over the crossbar. Seconds later, he shot over the bar again from just five metres.
Within seconds, Japan were back into the game. Shinya Yajima backheeled the ball for Shoya Nakajima to run clear and sidefoot the ball past Ali Fadhil in the Iraq goal.
But Iraq remained the dominant side in the second half and European scouts will no doubt be again looking at Adnan.
South Korea go into the second round with two wins from two games after their single goal triumph over win over Saudi Arabia in an uninspiring game for the home crowd.
Kim Seung-Dae took a 12th-minute free kick that swung in towards the goal, beating defenders and attackers on its way to the back of the net.
In the women's tournament, Thailand and South Korea scored huge 10-0 wins over Maldives and India respectively.
The football tournament started ahead of the main Asian Games schedule, which gets underway Friday.