By Sahal Abdulle

MOGADISHU, April 3 (Reuters) - A ceasefire in Mogadishu held for a second day on Tuesday when Somali clan elders prepared to meet Ethiopian troops after some of the worst fighting in the city's history.

Diplomats from the United States, Europe and Africa were also due to meet in Cairo under the auspices of the International Contact Group on Somalia to try to put pressure on the warring parties to negotiate and reconcile.

After four days of battles that killed several hundred people and left parts of Mogadishu in rubble, two days of relative calm have brought some relief to the capital's 1 million residents, many of whom are trying to flee.

Rebels linked to clan militia and a militant Islamist movement remained dug in behind sand-banks and in narrow alleys of Mogadishu. Ethiopian and Somali soldiers are watching them from positions close by, witnesses said.

"Things are quiet again this morning but the fighting could start again at any time, it's tense," said a Reuters witness, surveying the city from his rooftop.

Leaders of the Hawiye clan, the city's dominant group from whose ranks many of the insurgents come, were meeting early on Tuesday. They then planned to sit down with Ethiopian commanders, in Somalia to back the interim government.

Ethiopia joined forces with President Abdullahi Yusuf's government in late 2006 to drive out the Islamists, who had controlled most of south Somalia for six months.

The Islamists, who deny accusations from Ethiopia and the United States of al Qaeda links, initially scattered. They have since regrouped and returned to Mogadishu strongholds.

A four-day bombardment of those strongholds destroyed many blocks and took a heavy toll of civilians. Nearly 50,000 people have fled the city in the last 10 days, the United Nations says.

Yusuf's interim government was formed in neighbouring Kenya in 2004, the 14th attempt to restore central rule to Somalia since the 1991 ouster of a military dictator.

Somali experts held out little hope Tuesday's meeting of the Contact Group would have any major effect on the ground. The group was expected again to urge dialogue and reconciliation, and express concern over the large civilian casualty toll.

"The real story here is, in fact, the total lack of action by the international community on Somalia," one diplomat said.

The United Nations and other Western countries are backing a government-organised reconciliation conference scheduled to begin in Mogadishu in mid-April.

A small African Union (AU) peacekeeping force in Somalia of some 1,200 Ugandan soldiers has failed to stem the violence. Many believe it has stirred the insurgents by providing a highly-visible "foreign" target. (Additional reporting by Andrew Cawthorne in Nairobi)

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