(Adds UNIFIL denial, paragraph 9)

By Nazih Siddiq

NAHR AL-BARED, Lebanon, June 2 (Reuters) - Lebanese troops pounded suspected positions of al Qaeda-inspired militants to dislodge them from their hideouts at a Palestinian refugee camp on Saturday but the group vowed it would not surrender.

"There is no way we will give up our weapons because it is our pride. We cannot even contemplate surrendering," Abu Salim Taha, spokesman for the Fatah al-Islam militants, told Reuters by telephone from inside Nahr al-Bared camp in north Lebanon.

Amid the constant thud of explosions and crackle of machinegun fire, smouldering fires and plumes of black and white smoke billowed from many of the camp's bombed-out buildings.

Soldiers fired barrages of artillery shells and mortar bombs, levelling the camp's two highest buildings and leaving others in smoking ruins.

The fighting, which erupted on May 20, is Lebanon's worst internal violence since the 1975-1990 civil war. The government says militants triggered the siege by attacking army positions around the camp and Lebanon's second largest city, Tripoli.

Lebanon's anti-Syrian cabinet say Fatah al-Islam is a Syrian tool, but Damascus denies any links to the group and says its leader, Shaker al-Abssi, is on Syria's wanted list.

Lebanon has been split by a deep seven-month-old political crisis over the opposition's demands for more say in government. The opposition includes Syria's allies, led by Hezbollah.

A French-made Gazelle army helicopter fired two rockets and machinegun barrages at targets on the camp's coastal side by the Mediterranean, and later two helicopters buzzed over the camp. Lebanese navy gunboats also took part in the shelling.

The militant spokesman said a naval force belonging to UNIFIL, a U.N. peacekeeping force in south Lebanon, joined the attack, hitting a civilian shelter and inflicting casualties. A UNIFIL spokeswoman denied the peacekeepers played any role in the fighting and said the claim was "utterly unfounded".

SINIORA: NO COMPROMISE

The fighting eased off late into the night but inside the camp conditions were worsening.

"Since yesterday morning, the shelling has been ongoing all over the camp. Two shells fell on the building I'm in now. Several buildings have collapsed," said a Palestinian resident inside the camp. "There's only one clinic with one doctor left. There's no electricity, bread or medicine."

Prime Minister Fouad Siniora said there was no option for the militants but to surrender and give up their arms.

"... what they have committed against the Lebanese army and the Lebanese state, makes it impossible to find agreement, or accord or attempt at a truce or compromise," Siniora told Dubai-based Al Arabiya television in an interview.

Security sources said six soldiers died in fighting between Friday and Saturday, bringing the death toll in the two-week conflict to 106, of whom 41 are soldiers. At least 16 people were killed inside the camp on Friday, but it was unclear whether they were militants or civilians.

The army appealed to refugees in the camp to "be patient and to expel those criminals from among you" and renewed calls on militants to surrender, saying they would face a fair trial.

On Friday, elite troops seized three key Fatah al-Islam positions and destroyed sniper nests on the camp's northern and eastern edges. Many of the militants are foreign Arab fighters.

While the army has not entered the camp's official boundaries, it has encroached on the militants' positions on Nahr al-Bared's outskirts, confining them to specific points.

A 1969 Arab agreement prevents the army from entering Lebanon's 12 Palestinian camps, home to 400,000 refugees.

More than 25,000 of Nahr al-Bared's 40,000 refugees fled the camp in the past two weeks due to increasingly desperate humanitarian conditions. Hundreds of people have been wounded.

(Additional reporting by Yara Bayoumy and Nadim Ladki in Beirut)

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