Palestinian leaders on Monday sought to end a bloody standoff between the Lebanese army and Islamist militants holed up in a refugee camp which has been the battleground for Lebanon's worst fighting since the civil war.

The government is giving the main Palestinian factions time to try to deal with the Fatah al-Islam group, which has been battling the army around the Nahr al-Bared camp since May 20.

The worst internal fighting since the 1975-1990 civil war has killed at least 78 people, including 33 soldiers, 27 militants and 18 civilians. Heavy bursts of machinegun fire were heard overnight but there was calm by morning, witnesses said.

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The army has been firing on the militants from positions around the camp, which it is not allowed to enter under a 1969 Arab agreement.

Abu Emad al-Refaie, the Lebanon representative of Palestinian group Islamic Jihad, said the Palestinian factions had yet to agree on how to "end the phenomenon of Fatah al-Islam peacefully".

"This is what requires more discussion," he told Reuters.

The Lebanese government has demanded the handing over of Fatah al-Islam militants. It accuses the group of starting the conflict by attacking army positions around Nahr al-Bared and the northern city of Tripoli.

"We have not discussed the matter of handing them over," Refaie said.

The factions had agreed other points including the formation of a Palestinian committee to shore up security in the camp, he said. Osama Hamdan, the Lebanon representative of Hamas, declined to comment on the progress of the talks.

A Fatah al-Islam spokesman said the group would not hand over any of its fighters. "This is impossible," Abu Salim Taha said by phone from inside the camp.

Fatah al-Islam was not in direct contact with the Palestinian factions but talking to religious leaders in the camp, he said. "There is some mediation," he said. "There were illogical proposals. Now we will see what will happen."

The Lebanese authorities say Fatah al-Islam includes Arabs from Saudi Arabia, Algeria, Tunisia, Syria and Lebanon.

Saudi Ambassador Abdul-Aziz Khojah said four Saudi militants with Fatah al-Islam had been killed in the fighting. He told the pan-Arab al-Hayat newspaper on Sunday that members of the group from several Arab nationalities shared the ideology of al Qaeda.

Druze leader Walid Jumblatt, an influential member of Lebanon's governing coalition, said on Sunday there was no plan for decisive military action to end the standoff.

Refaie said: "The military solution is no longer an option."

More than 20,000 refugees have fled Nahr al-Bared, home to 40,000 before the fighting. Most have gone to the nearby Beddawi camp, where relief workers have warned of serious overcrowding.

Members of Lebanon's anti-Syrian cabinet have described Fatah al-Islam as a tool of Syrian intelligence. Fatah al-Islam broke away from the Syrian-backed Fatah al-Intifada group last year. Damascus denies any links to Fatah al-Islam.