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Uruguay scored the equalizer in the 87th minute to draw with Iraq 1-1 and won the penalty shootout 7-6 to reach the final of the Under-20 World Cup on Wednesday.
Runner-up in 1997, Uruguay will play first-time finalist France on Saturday.
Iraq midfielder Saif Salman sent the decisive spot-kick over the crossbar after both teams missed one penalty.
Uruguay substitute Gonzalo Bueno leveled the score with a volley in the closing minutes of regulation after Iraq took the lead in the first half on a free kick by Ali Adnan.
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Iraq missed the chance to reach the final of a FIFA tournament for the first time.
Earlier, France beat Ghana 2-1 in the first semifinal.
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