Lebanese troops shelled a Palestinian refugee camp in north Lebanon on Thursday after Al Qaeda-inspired militants killed two soldiers there, security sources said.

The army and Fatah al-Islam militants have battled at the coastal Nahr al-Bared camp for nearly eight weeks. At least 207 people have been killed, making it Lebanon's worst internal violence since the 1975-1990 civil war.

Security and political sources said on Wednesday the army, concerned about being sucked into a war of attrition, had decided to mount an all-out assault on the camp to root out the militants, who have defied demands that they surrender.

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Witnesses said the army was bombarding the camp from all sides, often at a rate of 7 to 10 artillery shells per minute. Black smoke billowed from inside the camp's bombed-out, smouldering buildings.

But a military source denied that Thursday's fighting was the "decisive" battle.

"These are normal daily operations and in response to sniper fire by the Fatah al-Islam militants," he said.

"The army's response is in the framework of tightening the noose on remaining elements of Fatah al-Islam inside the camp."

But Thursday's fighting was the most ferocious since the Lebanese defense minister declared late last month that all major combat operations had ceased at Nahr al-Bared.

Security sources said two Lebanese soldiers were killed by sniper fire in the clashes that started early in the morning, bringing the total army death toll to 89.

Seventy-five militants and 43 civilians have also been killed in the fighting that began on May 20.

The violence has further undermined stability in Lebanon, where a paralyzing eight-month-old political crisis has been compounded by bombings in and around Beirut.

The government says Fatah al-Islam is a tool of Syria, a charge Damascus and the militants deny. The group says it has no organizational ties with Al-Qaeda, but supports its ideology.

Some of its members - mainly Lebanese, Palestinians, Syrians and Saudis - have fought in Iraq. Security sources say at least 10 Saudis are among the dead militants.