Dozens of refugees are seen at the southern gate of the Palestinian Nahr al-Bared refugee camp in northern Lebanon June 11, 2007. [Reuters]

Heavy shelling continued especially at the northern entrance of the Nahr al-Bared camp, while fires raged and smoke billowed from the camp's cinderblock buildings. The militants retaliated by firing rockets at army posts on a nearby hill.

A military source said the army took control of a key position of Fatah al-Islam on the camp's coastal side. The army has suffered heavy losses, especially by sniper attacks from the militants' hideouts.

"Army units widened their control over areas in Nahr al-Bared and worked on controlling and capturing new positions of the gunmen, forcing them to flee," an army statement said.

"The army command repeats its call on the gunmen ... to lay down their weapons and to surrender so that justice can run its course."

At least 136 people, including 60 soldiers, have been killed since the battles started on May 20, the worst since the 1975-1990 civil war. Eleven soldiers died and more than 100 were wounded in battles at the weekend alone. Security sources said five soldiers were wounded in Tuesday's battles.

The Lebanese authorities have demanded the unconditional surrender of the gunmen, who have vowed to fight to the death.

Fatah al-Islam was officially formed late last year. Its leader, veteran Palestinian guerrilla Shaker al-Abssi, says he shares the same ideology as al Qaeda but has no organizational links with that group.

Many of his men are foreign Arab fighters, some of whom have fought in Iraq.

STABILITY UNDERMINED

Relief workers have been struggling to evacuate civilians still trapped inside the camp. Two Lebanese Red Cross volunteers were killed in the fighting on Monday.

The army is battling Fatah al-Islam militants on the outskirts of the camp, home to 40,000 before the fighting forced thousands to flee, mostly to a nearby refugee camp.

"The shelling is haphazard on the civilians. My cousin is lying dead in front of me and I can't move her," a hysterical Palestinian resident inside the camp told Reuters.

"There are civilians, children, that the army is shelling. I didn't leave the camp because where am I going to go ... to stay on the streets? We are not allowing the militants to pass through our streets, we've blocked our alleyways."

The fighting has further undermined stability in Lebanon, already paralyzed by a seven-month-old political crisis. Deadly clashes also erupted last week at Lebanon's largest Palestinian refugee camp and a string of bombs have targeted civilian areas in and near Beirut since May 20.

The army says the militants triggered the conflict by attacking its positions around the camp and on the outskirts of the nearby city of Tripoli. Fatah al-Islam says it acted in self defense.

Lebanese and Palestinian Islamist politicians and clerics have so far failed to broker an end to the conflict.