
Ethiopian troops and tanks attacked Council of Islamic Courts fighters on Sunday near their final stronghold town of Kismayo in the south, forcing them to retreat.
Courts commanders said ethiopian occupation forces, backed by tanks and trucks, had taken control of Jilib town, about 100km north of Kismayo.
"We have retreated back from the town and the Ethiopian invaders have taken control of Jilib," Dahir Hashi, a commander, said. "But we are going to counter attack."
A resident told AFP he saw Islamic courts pickup trucks mounted with machine guns speeding to Kismayo from the frontlines.
Islamic courts leaders had regrouped their forces in Jilib and Kismayo after abandoning the capital, Mogadishu, on Thursday in the face of Ethiopian firepower.
Puppet "deputy prime minister" of pro-US "government" Hussein Aidid said: "We will surround them but we will leave open for dialogue and negotiations for them to disarm."
So far, the offer of "peace talks" has fallen on deaf ears, with the Islamic courts leaders refusing to discuss surrender.
Sheikh Sharif Sheikh Ahmed, the Islamic force leader, told residents in Kismayo on Saturday: "I want to tell you that the Islamic courts are still alive and ready to fight against the enemy of Allah.
"We left Mogadishu in order to prevent bloodshed in the capital, but that does not mean we lost the holy war against our enemy."
Ahmed told Al Jazeera on Sunday: "We decided to fight the enemy in every area."
On Sunday, as Ethiopian forces, riding in 16 Ethiopian tanks and accompanied by armoured vehicles and artillery, swept southwards, they were met by as many as 2,000 civilians fleeing the expected fighting.
"The Islamic militia told us they are committed to defend the town to the death, so we have no other option but to flee," Ilse Ali Ilweyn, a father of six who lives in Jilib, said, Al Jazeera reported.
Osman Mohamed, an aid worker in the area, said: "Two thirds of the population in Jilib have fled the town ... nearly 4,700 have fled."
After retreating from Mogadishu on Thursday, the Islamic courts had told its fighters to rally around Jilib and Kismayo.
The militia used bulldozers to dig deep trenches outside Jilib, where analysts believe they had about 3,000 fighters.
With the Islamic courts moving backwards, Kenya has reinforced its northern border and US forces are also said to be in the region.
Somalia has not had a functioning central government since 1991.
Agencies