The Ethiopian Army has successfully repelled these attacks and continues to hold the post it gained yesterday. In addition to holding Geza Gerlase the Ethiopian Army has forced the Eritrean troops to retreat. Fighting continues.

Eritrea, in a desperate measure to compensate for its losses on the battlefield, has shelled Adigrat, a civilian target, with heavy artillery. This shelling started today at 4.40 p.m. and lasted half an hour. Early reports from Adigrat indicate that seven civilians, including a 28 year old woman, a 26 year old man and a boy were seriously injured in the attacks and are currently in Adigrat Hospital. Three houses were also destroyed.

It is becoming customary practice for Eritrean forces to attack defenceless civilian targets when they lose on the battlefield. Exactly the same pattern was seen on June 11th 1998 when after being heavily defeated on two fronts, Eritrea in a similar act of desperation attacked Adigrat from the air. This attack on civilian targets killed four and wounded 30 civilians including an eighteen month old baby.

The United Nations Secretary-General, Kofi Annan, has called for an immediate truce, but correspondents say the appeal seems to have fallen on deaf ears.

Eritrean authorities say clashes resumed after Ethiopian troops, backed up by helicopter gunships, launched an attack just after dawn on Sunday. They say they repulsed the assault and inflicted heavy casualties.

War of words

But Ethiopia says the latest fighting was sparked by Eritrea. It accused Eritrean forces of launching a succession of counter offensives in an attempt to recapture a strategic position which they had lost in earlier clashes.

Government spokesperson, Selome Tadesse, said Ethiopian troops had beaten back these attacks, but strongly denied helicopter gunships had been used at any point.

Ethiopia has also accused Eritrea of shelling the town of Adigrat, close to the central front. Seven civilians were reportedly injured during the bombardment and a number of houses destroyed.

So far there has been no independent confirmation of this or of any of the other claims made by the warring sides.

Our correspondent in Addis Ababa, Richard Lee, says it is clear that now full scale fighting has begun it will be very difficult to stop. Observers fear it is only a matter of time before the fighting spreads to others parts of the front.

Peace Plea

In his appeal for peace, UN Secretary-General Kofi Annan said he was deeply concerned that fighting had broken out while international peace efforts were continuing.

He said it was distressing that Ethiopia and Eritrea, who had so much to gain from working together toward economic prosperity, should instead be locked in battle.

UN envoy Mohammed Sahnoun, who has been shuttling between the two countries, described the situation as "very alarming".

'Escalating tensions'

Tensions between the two neighbours have been high since May, when they went to war over their undemarcated border. Hundreds of people were killed in artillery attacks and air raids.

The two countries signed a moratorium on fighting in June. Since then there have been sporadic skirmishes which culminated in a prolonged artillery battle on Thursday.

Peace efforts in the region are centred on an agreement brokered by the Organisation of African Unity late last year and endorsed last week by the UN Security Council.

Both sides have expressed support for a peaceful solution.

Full-scale warfare resumed Saturday some 900 kilometres (550 miles) north of Addis Ababa, on the Badme front, but the Ethiopian capital is within range of Eritrea's warplanes.

Anti-aircraft batteries have been installed around the city, and on Saturday the national carrier, Ethiopian Airlines, transferred its operational centre and its planes to Nairobi.

The "no peace, no war" which has reigned since early fighting tapered off in June last year has had little impact on the daily life of residents here.

The conflict over the 1,000-kilometre (600-mile) -long border is a subject of conversation, but as a faraway event.

People do express regret over Eritrean friends who have been deported, and fear for those that remain.

But no war psychosis exists, nor is there any significant increase in the number of soldiers in the streets.

Night-life is still active, and a new nightclub has opened at the Sheraton hotel. It is called Gaslight, to recall an Ethiopian nightclub in Washington, D.C.

A few resident expatriates have started stocking up on emergency food, but not enough to provoke the emergence of a black market.

Warnings to their nationals by the US, British and Canadian embassies of the danger of remaining in Ethiopia have gone virtually unheeded, even by embassy staff.

A few American families have left, but the embassy says that is due rather to the threat of terrorist attacks against Americans because of Washington's policies toward Iraq.

Most of landlocked Ethiopia's martime commerce has been switched from the Eritrean port of Assab to Djibouti port, but that has not resulted in any noticeable shortages.

"Use of Djibouti port has had no effect on the flux of goods," said Newai Gebre-ab, economic advisor to Prime Minister Meles Zenawi.

One shortage -- that of diesel in the provinces -- is due to its diversion to the military, not because transporters have left, as many Ethiopians believe, Newai said.

Inflation remains low, between four and five percent, he added.

The birr has dropped from 6.8 to the dollar last June to 7.5 now, but Newai told AFP that was a result of an international fall in the price of coffee, one of Ethiopia's main exports.

The government is estimated to have spent some 300 million dollars on the war effort, but the country has maintained spending in development and social sectors, and international donors have continued their programmes, though sometimes with delays, Newai said.

With both Horn of Africa countries moving seemingly inexorably toward war, U.N. Secretary-General Kofi Annan called on them to show restraint and try again for a diplomatic solution to their bloody border row.

But the two sides continued fighting Sunday and both claimed to have scored major successes since the clashes erupted in the heavily militarized border area of Badme Saturday morning.

``The Ethiopian attacks...seem to have petered out,'' Eritrean presidential adviser Yermane Gebremeskel told a news briefing in Asmara late Sunday, although he added that more fighting was expected.

``We have indications the Ethiopians are regrouping and might possibly launch an attack on other fronts,'' he said.

In the Ethiopian capital, Addis Ababa, the government said its troops had inflicted heavy casualties on the Eritreans whom it accused of shelling the northern Ethiopian town of Adigrat.

Government spokeswoman Selome Taddesse said seven civilians were wounded and three houses destroyed in the Sunday shelling.

``It has now become the customary practice of Eritrean forces to attack defenseless civilian targets when they lose on the battlefield,'' she said.

She described the shelling as a ``desperate attempt to compensate for its losses on the battlefield in the disputed Badme front.''

The former allies -- Eritrea won peaceful independence from Ethiopia following a referendum in 1993 -- first came to blows in May last year in a dispute over borders drawn up when Italy was the colonial ruler.

Ethiopia said Eritrea bombed Adigrat Friday and followed the air raid with a ground attack Saturday morning in Badme, which lies about 160 km (100 miles) to the west.

Eritrea said Ethiopia had fabricated the Adigrat raid as a pretext to launch the invasion which it said it had crushed.

Badme is a rocky triangle of land at the western end of the border and was occupied by Eritrea during a brief land and air war between the two countries last May and June.

Hundreds of soldiers and dozens of civilians were killed after fighting broke out along three fronts. The two sides agreed to a moratorium on cross-border air raids in June but have since reinforced their positions along the 1,000-km (625-mile) border and all efforts to negotiate a peaceful settlement have failed.

Although Ethiopia's population is numerically superior, western analysts and diplomats say Eritrean forces have spent the lull since May digging defensive positions and fortifying the frontier.

Any Ethiopian attacks, they say, would be robustly defended and likely lead to heavy casualties.

Gebremeskel said Ethiopian troops around Badme used artillery and helicopter gunships for a second successive day Sunday and followed up with an infantry attack.

``We routed two brigades (around 1,500 men each) and severely hit two more,'' he said.

According to the Office, the Ethiopian defence forces took control of the enemy stronghold at Geza Gerlase Saturday as the Eritrean defence forces unleashed an attack for controlling the right-wing of the Ethiopian defence post in the Badme front.

The Office also disclosed that, acting in desperation to compensate for its battlefield losses, Eritrea today shelled civilian targets in Adigrat with heavy artillery beginning at 4:40 this afternoon.

According to early reports from Adigrat, seven civilians, including a 29 year old woman, a 26 year old man and a boy were seriously injured in the attacks while three houses were also destroyed. The injured people are in hospital receiving treatment, it was learnt.

The Office said, "it is becoming customary practice for Eritrean forces to attack defenseless civilian targets when they lose on the battlefield. Exactly the same pattern was seen on June 11, 1998 when after being heavily defeated on two fronts, Eritrea, in a similar act of desperation, attacked Adigrat from the air. At the time, the attack on civilian targets killed four and wounded 30 civilians including an 18 month old body".

The Ethiopian Government deplores such attacks on civilian targets, the Office said.

Eritrea said its larger southern neighbor launched a new offensive in the heavily militarized border area of Badme and was deploying helicopter gunships to back up its ground forces.

Ethiopia said it had been attacked first but had beaten down an assault on its military post in Badme and was strengthening its position in fresh fighting Sunday.

It also said Eritrea had started shelling on another military front further to the east.

In New York, U.N. Secretary-General Kofi Annan called on the two Horn of Africa nations to halt the fighting and find a peaceful solution.

``The alternative, continued fighting, is completely unacceptable to the international community,'' he said.

Both sides blame the other for the eruption of heavy clashes Saturday but also claim to have gained the upper hand.

Eritrean officials said hundreds of Ethiopian soldiers were killed and more than 100 were taken prisoner as two brigades were put out of action and two others heavily battered.

Presidential adviser Yermane Gebremeskel said Ethiopia's new offensive was bound to fail, even with the air support for its ground troops.

``These helicopters won't really make much difference,'' he told Reuters Sunday morning.

But Ethiopian government spokeswoman Selome Taddesse said the country's armed forces were scoring major successes.

``Ethiopian forces took swift action and smashed the invasion and captured Geza Gerlase, a strategic Eritrean military post that commands control of Badme plane,'' she said.

She said the Ethiopian army had inflicted ``heavy losses'' on enemy units and was consolidating its hold over the area.

A spokesman of the Ethiopian National Defense Force said Eritrea had begun shelling Ethiopian positions on the central Zalambessa but that the attacks had been ineffective.

Badme, the center of fighting since Saturday, is a rocky triangle of land at the western end of the border and was occupied by Eritrea during a brief land and air war between the two countries last May and June.

Hundreds of soldiers and dozens of civilians were killed after fighting broke out along three fronts. The two sides agreed to a moratorium on cross-border air raids in June but have since reinforced their positions along the 1,000-km (625-mile) border and all efforts to negotiate a peaceful settlement have failed.

Britain and Germany Saturday advised their nationals to leave Eritrea as soon as possible as the government told people to stay indoors because of possible Ethiopian air raids against the capital Asmara.

But the city appeared calm Sunday and a wedding procession was seen circling Asmara's downtown area.

Ethiopia's state-owned airline is moving its operational headquarters from Addis Ababa to neighboring Kenya as a precaution against Eritrean bombing. The move means the carrier's aircraft will overnight in Kenya or other foreign countries rather than Addis Ababa.

The United Nations, the U.S. government and the Organization of African Unity (OAU) have all tried but failed to resolve the conflict despite intense shuttle diplomacy between Asmara and Addis Ababa in recent weeks.

He said there was a grave danger of escalation in their border war and urged the sides not to break a moratorium on air strikes. Germany currently holds the rotating EU presidency.

``If this conflict is not brought to a swift end, progress that has taken decades to build up will have been destroyed in a very short space of time,'' Fischer said in a statement.

``Therefore I call most emphatically on the Ethiopian Prime Minister Meles Zenawi and the Eritrean President Isaias Afweki to refrain from letting the situation escalate and in particular to honour the terms of a moratorium on air strikes.''

In Addis Ababa, the United States urged its nationals to leave Ethiopia and Eritrea while flights were still available.

Ethiopian officials made no immediate comment Sunday on the military situation along the 1,000-kilometre (600-mile) border.

"The Ethiopian army has opened a second round of attacks on the same front at 6.45 today (0345 GMT Sunday). The offensive is accompanied by helicopter gunships," said an Eritrean foreign ministry statement faxed to AFP in Nairobi.

In the Ethiopian capital, the US embassy put a message on its answering machine: "This is a warning message for US citizens ... we encourage US citizens in Ethiopia and Eritrea (to leave) while commercial transportation remains an available option."

Ethiopian Airlines on Saturday moved its operations centre, and its planes, to Nairobi -- the Addis Ababa airport is within range of Eritrean warplanes -- and suspended flights to Mekele, in northern Ethiopia, Bahir Dar, in the northwest, and Dire Dawa, in the east.

Ethiopia and Eritrea went to war over the frontier in May last year, with early battles reportedly resulting in several thousand deaths, but the fighting tapered off the following month, when the two sides also signed a US-brokered deal to halt airstrikes.

Western sources in Addis Ababa said last week that artillery bombardments had become frequent recently, but had not been made public.

Addis Ababa accused the Eritrean air force of bombing the northern Ethiopian town of Adigrat on Friday -- Asmara denied it -- and both sides reported the resumption of full-scale warfare on the western front on Saturday, with each claiming victory.

Eritrean forces have controlled Badme since the outbreak of hostilities and the town has become for Addis Ababa a symbol of "Eritrean aggression."

Eritrea has, however, not admitted that it controls Badme, and in its statements on Saturday and Sunday said that Ethiopian forces had attacked Mereb-Setit, an area north of Badme.

UN chief Kofi Annan on Saturday called for an immediate end to the fighting to give international peace efforts a chance to succeed.

In a statement, UN spokesman Fred Eckhard said Annan was "especially concerned" that hostilities had broken out while Annan's own envoy, Mohamed Sahnoun, us undertaking shuttle diplomacy between Asmara and Addis Ababa.

Sahnoun was due to leave the Ethiopian capital later Sunday for New York after talks here with Organisation of African Unity (OAU) Secretary General Salim Ahmed Salim.

Asmara has yet to respond to clarifications it has received on an OAU peace plan which calls for Eritrean forces to withdraw from the positions they occupied in May.

Diplomats said Sahnoun believed Asmara might yet agree to the plan.

In Sanaa, meanwhile, Eritrean Transport Minister Saleh Kekia on Saturday invited Yemen to mediate, telling reporters during a visit to the Yemeni capital that the country was a friend to both Eritrea and Ethiopia and could play an important role in ending the "senseless" conflict.