Is this a hoax? Sure seems like one to me. I, like most Americans, have deep distrust of MSM (main/morbid stream media). It looks like a plastic toy squirt gun to me. Is evil Iran supplying squirt guns to the religious sectarian civil war in Iraq?
(SIDE NOTE: See how "Iraq" and "Iran" are double underlined in the linked article on Fox News? That generally indicates Content Hypertext Spam from the asshats at Intellitxt and elsewhere. But in this case it's a link to MSN live search, and is a good idea really.)