MOGADISHU - Ethiopian-backed Somali government troops and rival Islamists shelled each other with heavy artillery for a third day on Thursday, as the religious movement said it was now at war with Addis Ababa.
Persistent rocket, mortar and machinegun battles since Tuesday local time have boosted fears that a devastating Horn of Africa war, sucking in regional players and spawning suicide bombings across east Africa, may have arrived.
It is the most sustained combat so far between the rival Somali factions, struggling for control of a nation in anarchy since the 1991 ouster of dictator Mohamed Siad Barre, after two months of increasingly violent skirmishes.
Both sides claimed to have killed hundreds, but there was no immediate confirmation of casualties.
"We are at war with Ethiopia, but not with the (Somali) government," hardline Islamist leader Sheikh Hassan Dahir Aweys told Reuters by telephone.
Aweys' comments came hours after he called the fighting around the government's encircled stronghold, Baidoa, "a small incident" and a top European Union envoy said the two sides had agreed to stop fighting and resume peace talks.
The fighting started late on Tuesday, the deadline the Somalia Islamic Courts Council (SICC) had given Ethiopian troops protecting the government to leave the country or face holy war.
The latest round of clashes began early on Thursday near Dinsoor, 100km southwest of Baidoa.
Residents and a Somali government source said troops loyal to both sides also appeared to be moving north in what some feared could spell fresh fighting in the town of Galkaayo.
Thursday's shelling seemed to scuttle the shuttle diplomacy by European Union aid chief Louis Michel, who flew into Baidoa and Mogadishu, where he met Aweys, to push the two sides back to the bargaining table.
Aweys, who denies US and UN allegations he is linked to al Qaeda, blamed Ethiopia for starting the fight: "If we are attacked we are not going to sit back."
The Somali government had no immediate comment.
Ethiopia remained officially silent on a declaration of war and again denied its combat troops were in Somalia, but has promised "to inform the world" if it decides to attack the SICC.
"These are baseless allegations which Aweys has been saying all along to mislead international public opinion," Ethiopian Information Ministry spokesman Zemedhun Tekele said.
Diplomats said it may take days or weeks to decide whether the fighting is actually a war, given the traditionally irregular nature of Somali combat.
One Western diplomat described it as skirmishing that could be war "if it keeps coming". Another said: "It's hard to say. If it stops in a couple of days, I am not going to call it a war."
Despite the uncertainty, the heavy presence of weapons and fighters in Somalia has all the ingredients for war.
Military experts say Ethiopia has sent 15,000-20,000 troops into Somalia, while Eritrea has sent about 2000 to the SICC.
Asmara denies any involvement and Addis Ababa says it has only a few hundred military trainers in Somalia but has vowed to crush any attack against them. Witnesses have told Reuters Ethiopian troops are heavily involved in the latest battles.
Witnesses in Baidoa said an Ethiopian military helicopter had flown out of the city on Thursday, and an unmarked C-130 airplane believed to be flying surveillance runs circled the dusty trading post that is the government's only safe ground.
Troops of the SICC, which controls most of southern Somalia by military force and the use of sharia law, and the fragile, Western-backed government have been fighting near Baidoa since Tuesday.