NAIROBI, Kenya, 31 March 2008 - At least 10 people were killed in Mogadishu, Somalia's chaotic capital, on Saturday afternoon after government troops shelled a market area known to be an insurgent hide-out.

According to witnesses, the fighting started when insurgents fired mortars at Villa Somalia, the presidential palace and seat of the transitional government. At the time, Somalia's president, Abdullahi Yusuf, was meeting with Ethiopia's foreign minister, Seyoum Mesfin. It was not clear if any government officials or Ethiopian troops, who are helping guard the palace, were hit.

The government and Ethiopian forces then responded, sending a barrage of mortar or artillery shells back toward the area where the insurgents had fired, witnesses said. The return fire landed in the crowded Bakara market, which insurgents have used as a base to attack government troops.

"I saw four dead bodies at the Mini-dollar Exchange," a foreign currency exchange, said Abdi Fanah, a resident. "Four others died in some other locations."

One hospital reported that 35 seriously wounded people had been brought there, and that two had died.

A new government plan has allowed Bakara's merchants to provide their own security. The government agreed to pull out its soldiers, who had robbed merchants on several occasions, in return for the merchants' not allowing insurgents to use the market as a base.

The transitional government is struggling to survive, suffering from low popular support, a lack of resources, predatory soldiers and a rising Islamist insurgency. The palace has increasingly come under attack.

Ethiopian troops have been in Mogadishu since December 2006, when they and transitional government forces ousted an Islamist administration that had briefly controlled the capital.

Government leaders are reaching out to moderate Islamists, urging them to negotiate to join the government. On Saturday, the United Nations special representative for Somalia, Ahmedou Ould-Abdallah, said a high-level delegation of opposition figures had arrived in Nairobi to discuss possible reconciliation with him.

"I believe that Somalis at home and abroad are yearning for peace and will not accept the continued fighting that has made their country a pariah," Ould-Abdallah said in a statement. "They would like to follow the 'right way' as described in the holy Koran."

Mohammed Ibrahim and Yuusuf Maxamuud contributed reporting from Mogadishu, Somalia.