Troops set to besiege Mogadishu

"We are not going to fight for Mogadishu, to avoid civilian casualties. Our troops will surround Mogadishu until [the Islamists] surrender," Abdikarin Farah, the Somali ambassador to Ethiopia, said.

Earlier, government forces seized the key southern town of Jowhar from their Islamist rivals before taking Balad, 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 Christian-led Ethiopia, which is backing Somalia's secular interim government, claimed it was halfway to crushing the Islamists, raising 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 that 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," Alpha Omar Konare, the AU chairman, said.

A week of mortar battles between Islamists and government forces has spiralled into an open war that threatens to engulf the Horn of Africa, possibly attracting foreign jihadists.

Berhan Hailu, Ethiopia's information minister, said it had begun the offensive at the request of Somalia's government - and was also ensuring its own security. He said: "Ethiopian troops are fighting to protect our sovereignty from international terrorist groups and anti-Ethiopian elements. Ethiopia has said time and again its forces will withdraw as soon as they end their mission."

The retreating Islamists appeared to be heeding a call by their leader, Sheikh Sharif Ahmed, for forces to gather in Mogadishu to prepare for a long war against Ethiopia.

Analysts say a tactical retreat may draw Ethiopian troops further into Somalia and trigger a lengthy guerrilla campaign on the Islamists' home turf.