From a internal press release (may be public by now)
Google Image Search now displays current news images and links to news headlines related to a user's query. For example, a query on Google Image Search for "earth" will likely show relevant news images and links to related news stories at the top of the results pages if "earth" is in the news at the time of the query. This enhancement enables users to find the most recent results through Google Image Search and demonstrates Google's mission to connect people to the information they need.
Yea, I reported this yesterday at the search engine roundtable. This only works with single words. You can type in "iraq" and get images from google news on iraq BUT you can not type in "united states" and get images from google news on united states. I guess it needs some work.