(Adds U.S. comment, paragraphs 12-14)

By Sahal Abdulle

MOGADISHU, April 24 (Reuters) - A car bomb killed four civilians in Mogadishu and a suicide attacker struck at Ethiopian soldiers on Tuesday as battles between government forces and Islamist insurgents raged for a seventh day.

Nearly 300 people have died in the week of artillery duels and gun battles between allied Somali-Ethiopian forces and rebels frustrating the government's bid to restore central rule in the Horn of Africa country for the first time in 16 years.

Four residents were killed on Tuesday when a car packed with explosives detonated as two Ethiopian troops trucks drove by.

"One was decapitated," a resident near the scene said. A government soldier was injured, he added.

Mogadishu residents say neither side appears to have gained much ground in a battle focusing on one small neighbourhood, an Islamist stronghold of bomb-shattered buildings.

"Most of the houses next to me have been shelled. I am lucky my house is still standing," said Omar Hussein who lives near the scene of the heaviest clashes.

The United States, which diplomats say has given tacit backing to Ethiopia's involvement in Somalia, has urged all sides to reach a ceasefire, expressing concern over a growing humanitarian crisis.

The most sustained fighting in Mogadishu since the Somali-Ethiopian force defeated rival Islamists over the New Year has killed 293 people, local officials said.

Bodies lie rotting in the streets, and the number of government troops and Ethiopian soldiers killed is not known.

In Addis Ababa, Ethiopian Prime Minister Meles Zenawi said the operations to crush Islamist hardliners were going well and there had been "no mass casualties of the type that the so-called human rights organisations have been reporting".

"I would be very surprised if it were to take us more than a week or two to completely clear Mogadishu," he told reporters.

Ethiopia's Foreign Minister Seyoum Mesfin met U.S. Secretary of State Condoleezza Rice in Washington late on Monday, the State Department said on Tuesday.

State Department spokesman Sean McCormack said the Ethiopian minister made clear to Rice his country's forces had no desire to stay in Somalia longer than needed but there needed to be a stable security environment.

"We also don't want to see -- and they don't want to see -- a vacuum open up in Somalia in the wake of a precipitous withdrawal by Ethiopian forces," McCormack told reporters.

SUICIDE BOMBER

The violence continued when a suicide car bomber blew up at an Ethiopian military base in Afgooye, a small town 30 km (19 miles) west of Mogadishu.

"I saw the Ethiopian soldiers shouting at this car to stop, then it exploded," local resident Abdi Hassan said.

Nearly half a million people have fled the city. Thousands are sleeping under trees or in the open in surrounding towns and villages like Afgooye.

The United Nations has warned of a looming catastrophe with disease rife among the hungry, exhausted population.

The U.N. food agency said on Tuesday it had struck a deal to get better access to them and would try to reach Afgooye. A WFP convoy was turned back earlier this month while en route from Mogadishu to the town.

Prime Minister Ali Mohamed Gedi says his interim government is determined to crush fighters he says are linked to al Qaeda.

But residents say the violence has drawn in hundreds of militia from Mogadishu's dominant Hawiye clan, which opposes the role of Christian-led Ethiopian forces in Somalia.

"The rebel forces fighting the government and Ethiopian troops ... are from Hawiye clan and are clearly opposing the presence of the merciless Ethiopian troops," Hawiye spokesman Ahmed Diriye Diriye told Somali broadcaster Shabelle.

Four days of battles at the end of March killed at least 1,000 people, again mostly civilians. About 1,500 African Union (AU) peacekeepers have failed to stop the bloodshed.

On Tuesday, the head of the AU in Burundi -- which has also pledged to send troops -- called on donors to pay up.

"The AU is obliged to beg money in order to deal with that situation. We appeal to our partners who promised to help us," Ambassador Mamadou Bah told reporters in Bujumbura. (Additional reporting by Guled Mohamed in Nairobi, Andrew Heavens in Addis Ababa and Patrick Nduwimana in Bujumbura)

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