Two Lebanese soldiers were killed on Tuesday at a Palestinian refugee camp in north Lebanon where fighting between troops and Islamist militants is in its fifth week, security sources said.

They said another Lebanese soldier died on Tuesday from wounds sustained earlier.

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Witnesses said army shelling resumed early in the morning of pro-Al-Qaida militants entrenched in the Nahr al-Bared camp and later intensified on the camp's eastern side. Television footage showed smoke billowing from punctured buildings.

On Monday, sources said the army appeared to be close to its main goal of crushing all of Fatah al-Islam's positions on the outskirts of the camp, one month into the fighting.

The army has destroyed one of the group's main positions, the Samed complex, which used to be a weapons store and training centre.

Security sources said Lebanese troops discovered the bodies of seven militants in a building where they were checking for boobytraps.

The fighting is Lebanon's worst internal violence since the 1975-1990 civil war. At least 162 people, including 73 soldiers, more than 57 militants and 32 civilians, have been killed.

The army has slowly encroached on the area controlled by the militants, without entering the camp's official boundaries. Security forces are barred from going into Lebanon's 12 Palestinian refugee camps under a 1969 Arab agreement.

Mediation efforts are underway to arrange for a ceasefire, a Palestinian source said. The plan would entail putting the army in full control of all the camp's outskirts and confine the militants to a small part of it. Negotiations would then start over the remaining militants' fate.

Lebanese authorities have demanded the militants surrender, but Fatah al-Islam has vowed to fight to the death.

Fatah al-Islam emerged late last year after its leader, Shaker al-Abssi, and some 200 fighters split from the pro-Syrian Palestinian faction Fatah al-Intifada (Uprising). Lebanon's Western-backed government says Fatah al-Islam is linked to Syrian intelligence, a charge denied by Damascus and the group itself. Abssi has said he supports Al-Qaida's ideas but has no organizational ties to Osama bin Laden's network.