A joint force of Ethiopian and Somali government troops advanced to just 30 kilometres from Islamist-held Mogadishu yesterday, but a representative said they would besiege the Somali capital rather than attack it.

"We are not going to fight for Mogadishu, to avoid civilian casualties. Our troops will surround Mogadishu until they (the Islamists) surrender," Somali Ambassador Abdikarin Farah told reporters in Addis Ababa.

Earlier, pro-government forces seized the key southern town of Jowhar from their Islamist rivals before taking Balad, which lies only a short distance north of Mogadishu.

Many residents left their houses to cheer the victors, backed by Ethiopian tanks, who pursued the retreating Islamists as sporadic gunfire echoed in the air.

The rapid offensive came hours after Ethiopia, defending the Somali interim government, said it was halfway to crushing the Islamists, heightening fears its next step would be to use air strikes and ground troops to seize the capital. In a hastily convened session, the African Union (AU) demanded all foreign players, including Ethiopia, immediately withdraw their forces from Somalia.

"We appeal for urgent support for the transitional government and the withdrawal of all troops and foreign elements," AU chairman Alpha Omar Konare said in a statement.

An AU-led mission would visit Somalia soon, he said.

A week of mortar duels between Islamists and the Ethiopian-backed secular government has spiralled into open war that threatens to engulf the Horn of Africa, possibly attracting foreign jihadists.

Ethiopia's Information Minister Berhan Hailu said Addis Ababa began the offensive at the request of the interim Somali government - and was also ensuring its own security.

"Ethiopian troops are fighting to protect our sovereignty from international terrorist groups and anti-Ethiopian elements," he said. "Ethiopia has said time and again its forces will withdraw as soon as they end their mission."

Ethiopia accuses neighbour Eritrea of supporting the Islamists, and says it has taken foreign prisoners of war. Ethiopia has proved more than a match for the Islamist fighters, who are driven by religious fervour but lack the MiG fighter jets and long experience of one of Africa's most effective armies.

Even so, any Ethiopian-led offensive on Mogadishu, a city of two million people, would likely be messy. The retreating Islamists appeared to be heeding a call by their senior leader, Sheikh Sharif Ahmed, for forces to gather in Mogadishu to prepare for a long war against Ethiopia.

Analysts say a tactical retreat by the Islamists may draw Ethiopian soldiers further into Somalia and trigger off a lengthy guerilla campaign on the Islamists' home turf.

The Somalia Islamic Courts Council (SICC) has depicted the conflict with Christian-led Ethiopia as a holy war against "crusaders", tapping into popular anti-Ethiopian sentiment after decades of rivalry between the two neighbours.

Ethiopia has portrayed it as a war against al Qaeda-linked terrorists, winning tacit support from Washington, which believes Islamic militants are hiding in Somalia. Ethiopian Prime Minister Meles Zenawi says his forces have killed up to 1,000 Islamist fighters and wounded 3,000, but there is no independent verification.

The Islamists say they have killed hundreds.

Although the government risks prolonging the war by besieging Mogadishu, the alternative is less attractive.

More than a decade ago, US forces backed by Black Hawk helicopters suffered a humiliating defeat at the hands of militiamen attacking from the city's maze of back alleys.

Mindful of the historical precedent, Ethiopia will want to avoid getting embroiled in street-by-street fighting.

Analysts say another possible threat to the Islamists is Somali gunmen once in the employ of the capital's ousted warlords, whose loyalty to the SICC could be tested.

More than 800 people have been wounded and thousands are fleeing the combat zone, according to the Red Cross.

The United Nations has warned that the displacement could trigger an aid crisis in a region already struggling with the aftermath of severe flooding.

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