
AC Milan's Honda ran riot in the 2-0 win over Jordan, scoring the opener and hitting the post late on, while Kagawa got his first of the tournament late in the game.
Japan, who have won four of the last six Asian Cup titles, reached the last eight without conceding a goal and they will face Mahdi Ali's stylish UAE side in Sydney on Friday.
"It was an intense game," said Japan coach Javier Aguirre . "We had to give maximum effort but we deserved to win. Now everything starts from zero again. All the eight teams in the quarter-finals have equal opportunity to win the tournament."
Iraq, meanwhile, found Palestine a tough nut to crack but Mahmoud revived memories of his famous winner in the 2007 final when he climbed to nod the opener from a corner.
The clubless veteran disappointingly missed a second-half spot-kick but Ahmeed Yaseen sealed a 2-0 victory with a powerful low drive two minutes from time.
Iraq next take on neighbours and three-time champions Iran in Canberra in a quarter-final which pitches together two of Asian football's fiercest rivals.
"Younis is such an experienced player and so positive for the team," said Iraq's caretaker boss Radhi Shenaishil. "He is the player that everyone in the team thinks is a star. I think tonight was the most time he's spent on the pitch this tournament."
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