Second-half goals from Hawar Mohammed and substitute Mahdi Karim in Athens gave war-weary Iraq a perfect six points from two games in Group D.
Iraq's under-23 side, which has endured extreme hardship to qualify for the Olympics, stunned Portugal 4-2 in their opening game. Iraq reached the Asian Cup quarter-finals last month.
"Our success is so important for our people and our country because we are facing so many difficulties," said Mohammed.
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Meanwhile, Parma striker Alberto Gilardino scored twice as Italy beat Japan 3-2, knocking the East Asians out of the Olympics.
Japan became the first team to be eliminated from the men's competition after being outclassed by Italy in Volos.
AS Roma midfielder Daniele de Rossi put Italy in front with an acrobatic scissors-kick after three minutes.
SHELL-SHOCKED
Six minutes later, Gilardino doubled Italy's lead with a fine solo strike to leave Japan shell-shocked.
The Japanese hit back in the 21st minute, midfielder Yuki Abe curling in an exquisite free kick from the edge of the box.
But Gilardino struck again in the 36th minute, climbing to meet an Emiliano Moretti cross with a looping header that drifted over Japan goalkeeper Hitoshi Sogahata.
Striker Daiki Takamatsu pulled one back for Japan in second-half stoppage time but it came too late to salvage their Olympic campaign after a 4-3 defeat by Paraguay in midweek.
Italy went top of Group B on four points, ahead of Ghana on goals scored. The African side beat Paraguay 2-1 in Thessaloniki.
Manchester United midfielder Cristiano Ronaldo was on target for Portugal, who got their campaign back on track with a 2-1 win over Morocco.