Ethiopia said on Thursday it had repulsed an attack by Eritrean forces on the Zalambessa front which began Wednesday night.

Eritrea denied the claim, saying no fighting had taken place at the time or in the area claimed by the Ethiopians.

``Beginning yesterday evening at 9 p.m. (1800 GMT), the Isayas military machine attacked Ethiopian controlled position at Chin Keren on Zalambessa front,'' Ethiopian Government spokeswoman Selome Taddesse said.

``The offensive ... continued through the night ending this morning at 6 a.m. (0300 GMT),'' she said.

Chin Keren is a strategic Ethiopian position on the left flank of the main highway which connects Ethiopia and Eritrea near Zalambessa, officials said.

Eritrean government spokesman Yermane Ghebremeskel dismissed the Ethiopian claims. ``It is absolutely untrue. These are ridiculous allegations,'' he said. ``This falls within the Ethiopian pattern of lying and looking for diversions at every opportunity.''

Ethiopia and Eritrea have been at odds for over a year in a dispute over border territory which has claimed tens of thousands of lives on both sides.

The international community has been pressing for the implementation of an Organisation of African Unity-sponsored peace plan which Eritrea has accepted but has yet to be approved by Ethiopia which is seeking clarification on technical details.

Taddesse accused Eritrea of ``insincerity,'' by accepting the OAU peace plan ``while launching an attack on Ethiopia.''

British pilot Alan Lewis, 47, and co-pilot Anders Rors, a 48-year-old Swede, died on Sunday when the Learjet 35A was shot down in northern Ethiopia, said a spokesman for ExecuJet Aviation Group, which was to refurbish the American-owned plane in South Africa.

The bodies were brought to Addis Ababa from the town of Axum on Thursday and would be examined by Ethiopian doctors before they were sent abroad, said ExecuJet spokesman Linden Birns. Ethiopia on Wednesday said it downed the plane south of the northern town of Adwa, a area from which all civil flights were barred since the outbreak last year of a border war with Eritrea in which tens of thousands have been reported killed.

Birns said the plane had received written flight clearance for its entire route, which took it from Naples to Luxor in Egypt. The plane then passed near the Eritrean port of Massawa and was to have flown along the Red Sea coast to Djibouti before turning southwest towards Addis Ababa, he said.

``They had filed a flight plan. It was cleared by the authorities (including from Ethiopia) and had specific clearance for travelling,'' he told Reuters by telephone from Johannesburg.

The plane was carrying a transponder, which should have identified it to Ethiopian authorities, and it had made radio contact with Eritrean air traffic control before entering Ethiopian airspace, he said.

Ethiopia was yet to provide concrete evidence of its own communications with the jet or where exactly it had been shot down, so it was unclear whether it had deviated from its agreed flight plan, he said.

But Ethiopian authorities told the British embassy in Addis Ababa during a meeting that the plane had ``no flight clearance for Ethiopia,'' an embassy spokeswoman said on Thursday.

``The Ethiopian authorities expressed regret to our ambassador at the loss of life but were adamant that the aircraft should not have been in the prohibited zone,'' she told Reuters by telephone.

The Swedish foreign ministry on Thursday summoned Ethiopian ambassador to Stockholm Tewolde Gebru to explain what a spokeswoman said was ``a very serious incident.''

``We demanded further investigation especially concerning the remains and findings in and around the plane in order to be certain that everything was done to identify the plane before shooting it down,'' the spokeswoman told Reuters from Stockholm.

The jet disappeared from radar screens over Eritrea

The Ethiopian authorities are being urged to search for two pilots including a Briton missing amid fears that their jet may have been blasted from the sky in a war zone.

South African aviation company ExecuJet said it hoped that Alan Lewis, 47, and Anders Rors, 48, from Sweden, were still alive.

The aircraft, en route from Italy to South Africa, disappeared from radar screens over Eritrea on Sunday.

There were fears that it may have strayed into a military no-fly zone in neighbouring Ethiopia. Ethiopian military authorities have said they shot down an unidentified plane.

But ExecuJet spokesman Linden Birns said that the plane was heading for Ethiopia via Djibouti and the pilots were well aware they should not go into the no-fly area.

"They are very experienced pilots, both with about 10,000 hours' experience, and several years' experience operating aircraft in Africa and Europe," he said.

"They had full clearance from all the countries they were to fly over and had filed a flight plan before setting off.

"They were well aware they were not allowed to cross the frontier between Eritrea and Ethiopia, they were going via Djibouti - that was the approved routing."

Appeal for search

He said the Eritrean authorities had agreed to mount "some sort of search" and Sweden was asking the Ethiopians to do the same.

"We have an aircraft ready to send to the area to take part in a search if we can get the necessary approval," he added.

"We do not have information that the jet was shot down - that is an assumption based on what the Ethiopians have said."

The Learjet 35A flown by the two freelance pilots failed to complete its journey from Naples to Johannesburg after refuelling in Egypt on the second leg of its journey from Europe.

Mr Lewis, who is single, has lived in South Africa for several years. It is not yet known where he is from in Britain.

Mr Rors lives in Stockholm and is divorced with a 14-year-old son.

No-fly zone

The men had been hired to fly the 20-year-old jet, owned by an American trust company and used for business charters in Europe, for refurbishment in South Africa.

Ethiopia has established a strict no-fly zone along its frontier with Eritrea since a bitter conflict broke out between the two countries in May 1998 over the control of border areas.

Fighter jets belonging to the Ethiopian military make frequent sorties against Eritrean rebels while anti-aircraft posts are dotted along the border.

A Foreign Office spokesman said today: "We are aware of these reports, which cause us concern.

"The British Embassy in Addis Ababa and consulate general in Pretoria are urgently trying to establish the facts with the Ethiopian and South African authorities."

Before war broke out in May last year Eritrea's annual economic growth was running at around four percent of Gross National Product, but has since slowed dramatically.

Yet the economy of three million people, which was formerly reliant on trade with its landlocked neighbour Ethiopia, remains structurally intact despite the scars, say economists.

Since the war started, over 300,000 men and women have been drafted into Eritrea's army, and the conflict has reportedly killed tens of thousands of soldiers.

Most households have lost breadwinners and the 61,000 people deported from Ethiopia must be fed, while the fighting has displaced around 300,000 villagers.

Foreign reserves halved as arms flooded in. Additional taxes were imposed to pay for the huge army and Ethiopia, with its economy of 60 million people, confidently predicted economic collapse and the downfall of Isayas Afewerki's government in Asmara.

But the Nakfa's official rate has risen from 7.2 to 8.0 against the dollar with the black market rate around the 9.5 mark.

Shops remain well stocked although there are shortages of industrial materials and some factories are operating way below capacity. Serious food shortages have been avoided.

Just as importantly, foreign investors and development partners such as the World Bank and UNIDO express guarded optimism for Eritrea's future.

``The World Bank remains excited about Eritrea's economic prospects. Our programs are moving and we are lining up substantial assistance for post-war recovery,'' World Bank representative Ammanuel Ablo told Reuters in Asmara this week.

American investors have started a shrimp farm and an engineering export project. One deportee from Ethiopia began daily flights of vegetables to Europe in February, just six months after his arrival. A tomato paste factory is being constructed, while trade with Sudan has boomed with the resumption of ties.

Privatisation and infrastructure programs have also moved ahead. ``In two years the government has privatised 19 out of 39 state firms, this would be remarkable even in conditions of peace,'' one U.N official told Reuters.

``We've lost precious time but that's all,'' a government official added.

One key to Eritrea's economic survival is that it has borrowed little from outside to finance the war, benefitting instead from contributions from members of the diaspora who have brought in over $100 million in zero interest bonds issued by the Bank of Eritrea.

``Borrowings are minimal so the scope for lending is higher. We have tripled Eritrea's loan allocation to $250 million for the next three years'' commented Ablo.

Susan Rice, U.S. Assistant Secretary of State for African Affairs, and former National Security Adviser Anthony Lake hope to revive a stalled peace plan put forward last year by the Organisation of African Unity (OAU), they said.

Tens of thousands of soldiers on both sides have been killed in trench warfare along the border which first broke out in May 1998.

Eritrea has accepted the OAU proposal, which calls for an immediate ceasefire, but its former ally Ethiopia has asked for clarification on some technical details.

Eritrea, a former province of Ethiopia, won independence in 1993 after a long guerrilla struggle. Initially friendly relations between the two nations turned sour over economic issues and a poorly demarcated border.