We propose a jet model for the low/hard state of galactic black‐hole X‐ray sources which explains a) the X‐ray spectra, b) the time‐lag spectra, and c) the increase of the amplitude of variabilty (quasiperiodic oscillations and high frequency) with increasing photon number. The model (in its simplest form) assumes that i) there is a uniform magnetic field along the axis of the jet, ii) the electron density in the jet is inversely proportional to the distance from the black hole, and iii) the jet is hotter near its center than at its periphery. We have performed Monte Carlo simulations of Compton upscattering of soft photons from the accretion disk and have found power‐law high‐energy spectra with photon index in the range 1.5 – 2, power‐law time lags versus Fourier frequency with index 0.7, and an increase of the rms amplitude of variability with photon energy as it has been observed. © 2004 American Institute of Physics