By Guled Mohamed

MOGADISHU, July 21 (Reuters) - Troops patrolling the Somali capital's biggest market in the hunt for Islamist insurgents came under fresh attack on Saturday when grenades were thrown at them, killing three people, witnesses said.

Somali government forces and allied Ethiopian troops have been a target of regular attacks in Mogadishu's Bakara market, which is home to one of the world's biggest open-air weapons markets and is suspected of being a hideout for insurgents.

Two civilians and a policeman were killed in Saturday's grenade attack, the witnesses said.

Residents often accuse the joint forces of firing indiscriminately in retaliation to an attack.

After a meeting with businessmen, security authorities decided to pull soldiers out of the area, leaving patrolling up to police, Ali Mahamud Hassan, a leading member of the Bakara business community, said.

"I urge all shopkeepers to avail themselves tomorrow morning at 7 a.m. to open their shops for the police to search for arms," he told a news conference.

"If anyone fails to open his shop, it will be broken into and no one will be held responsible."

Prime Minister Ali Mohamed Gedi has met with elders, business leaders and security officials to discuss ways of ensuring security at the market which supplies goods to others in the rest of the country, a government spokesman said.

"Some of the elders complained that government troops were targeting specific clans and arresting them in the guise of fighting crime. But it's not true," spokesman Abdi Haji Gobdon told reporters.

Reconciling clan rivalries are at the heart of talks the interim government hopes will bolster its legitimacy and win it the support it needs to bring peace among Somalia's myriad factions.

The reconciliation meeting opened last Sunday, marred by mortar bombs attacks. Since then almost 10,000 people have fled the capital, the United Nations refugee agency UNHCR said.

"There is no single day when someone is not killed in that city," a Mogadishu resident was quoted by UNHCR as saying.

A local aid worker said: "Even at night there is no respite as despite the curfew, you can hear automatic gun fire as well as explosions."

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