(Recasts, adds police)

By Aweys Yusuf

MOGADISHU, March 26 (Reuters) - Somalia's Islamist fighters seized control of Jowhar on Wednesday, the most significant of several towns they have captured in recent months from the Western-backed interim government.

Seven people including a child were killed in the attack, which highlights the government's inability to assert its authority on Somalia despite support from Ethiopian and African Union troops.

Islamist-aligned troops have taken over towns from local administrations that usually amount to little more than militias, only to give them up or be routed by Ethiopian or Somali government forces who arrive later.

Forty aid agencies urged the world on Wednesday to focus attention on the "catastrophic" humanitarian situation in the Horn of Africa country, where hundreds of thousands of people are suffering from war, drought and food shortages.

A 15-month Islamist-led insurgency has killed more than 6,500 people and has seen a resurgence in recent months.

The Islamist fighters had seized four smaller towns and a military checkpoint near Mogadishu before Wednesday's capture of Jowhar, a town 90 km (50 miles) north of Mogadishu that served as a temporary base for the interim government in 2005.

"Seven people, including a woman who was a government soldier and her small child that she was carrying on her back were killed early in the morning when Islamic Courts fighters seized the town," resident Abdi Ali Osman told Reuters by phone.

PRISONERS FREED

He said the Islamist gunmen later freed all prisoners in Jowhar, which was once controlled by Mogadishu's mayor -- former warlord Mohamed Dheere.

A spokesman for the Islamic Courts forces, Abdirahin Isse Addow, said four government soldiers were killed.

"Our troops entered Jowhar at six in the morning. Few government troops fought us and we defeated them, forcing them to run away," he told Reuters by phone from an undisclosed location.

Meanwhile, elders in the strategic port town of Merca, 100 km (60 miles) south of the capital, said Ethiopian troops backing the interim administration had occupied it since Sunday.

"They called the elders and told us they had come to Merca for security reasons and that they heard that al Shabaab groups were inside the town," local elder Mohamud Kulow Aweys told Reuters by phone.

The United States has formally designated Somalia's al Shabaab a foreign terrorist organisation, and said it has strong links with al Qaeda.

Former colonial power Italy on Wednesday donated $10 million to help train and equip Somalia's nascent police force and boost the government's other institutions, the African Union said in a statement.

Somalia has had no effective government since warlords overthrew dictator Mohamed Siad Barre in 1991 and then turned on each other, plunging the country into chaos.

The current government has been racked by political infighting and a bloody insurgency that have prevented it from making much progress toward establishing state institutions.

Wednesday's aid agencies' statement said Somalia had one million internal refugees, their numbers swelled by 20,000 a month fleeing Islamist-government fighting in Mogadishu.

The United Nations children's agency says Somalia is the worst place in the world for children, the agencies said, adding: "Approximately one in seven children under the age of five in Somalia are acutely malnourished." (For full Reuters Africa coverage and to have your say on the top issues, visit: http://africa.reuters.com/ ) (Writing by Helen Nyambura-Mwaura; additional reporting by Tsegaye Tadesse in Addis Ababa; editing by Andrew Roche)

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