After the beheading, one of the jihadists, with blood in his hands, holding a knife and a machete, talking to the camera, says: "An eye for an eye, a tooth for a tooth", and swears by Allah: "We will never stop fighting you".
In the fuller version of the video at Jihad Watch, at the beginning he mentions Surat at-Tawba, the ninth sura (chapter) of the Qur'an, which contains exhortations to kill infidels.
I've summarized here the events as they developed and became known, from the BBC feed:
A witness claims two men in a car ran over another man walking along the street, then got out of the car and carried out an axe attack on him, killing him, the BBC's Matt Prodger reports.
It is claimed the victim was wearing a Help for Heroes charity T-shirt. He was a soldier, a young army cadet serving in the Woolwich Barracks, South-East London.
The police responded and then shot the two attackers in front of the public.
The two injured men were taken away from the scene, and London Ambulance Service says one is in a "serious" condition.
Police have removed a "substantial number of weapons" from the scene, including knives and at least one firearm.
One witness, identified only as James, said two men attacked another man, aged about 20, who was wearing a Help for Heroes T-shirt.
"These two guys were crazed. They were just animals. They dragged him from the pavement and dumped his body in the middle of the road and left his body there," he told LBC radio.
Another eyewitness wishing to remain anonymous said:
"I was walking my dog and heard some shouting about 50 yards from me. A man was running down the road and being chased by a car. The car then screeched to a halt and two men got out one had some kind of sword. They literally swung at the other guy's head. The armed police turned up and there were some shots. We were told to go home and now they won't let us out. We're in lockdown. There actually now seems more activity than there was before. I can hear helicopters and there are police officers with guns."
Witness Graham Wilders told the BBC he arrived on the scene to find a car crashed into a wall and a man on the ground.
"Two people were lying over him and I thought they were trying to resuscitate him," he said.
But Mr Wilders said he drove on to park his car, and when he returned another witness told him the two men were stabbing the man on the ground.
Senior Whitehall sources have told the BBC that the Woolwich attackers are thought to have tried to film their attack whilst shouting "Allahu Akbar" - God is Great, says political editor Nick Robinson.
The men were said to have been of Muslim appearance (surprise, surprise!).
The government is now treating this as a suspected terrorist attack, Mr Robinson says.