(Adds Ethiopian statement, details)

By Sahal Abdulle

MOGADISHU, March 30 (Reuters) - Rebels shot down a helicopter gunship in Mogadishu on Friday and Ethiopia said its forces had killed 200 insurgents in a two-day joint offensive with Somali troops against Islamists and clan militia.

Aid workers said scores of civilians also died in the city's worst fighting in years. Shells crashed down and deafening tank fire shattered buildings as guerrillas replied with barrages of mortars, missiles and rocket-propelled grenades.

"Ethiopia has killed 200 armed remnants of the Islamic Courts Union and wounded many others," Ethiopia's Information Ministry said in a statement broadcast on national television.

Mogadishu residents cowered at home and reporters watched from rooftops earlier on Friday as two Ethiopian helicopters fired on a rebel stronghold before one was hit by a missile.

"Smoke billowed from the cabin and it turned towards the ocean," one witness, Swiss journalist Eugen Sorg, told Reuters. "It crashed at the south end of the airport runway."

Ugandan peacekeepers pulled two bodies from the wreckage.

U.N. Secretary-General Ban Ki-moon said he was "deeply disturbed" by the sharp escalation in violence.

"He is particularly concerned about the use of air strikes and the introduction of tanks and heavy artillery into densely populated parts of the city," a spokesman said in a statement.

More than 230 people have been wounded since Thursday, and the toll of dead and maimed looked sure to rise. The International Committee of the Red Cross said scores had been killed in the city's worst fighting for more than 15 years.

"A mortar has just fallen into the house next to me. We can hear crying," said Faisal Jamah, a south Mogadishu resident.

"There are a lot of wounded, but there is no way to take them to the hospitals due to the fighting."

GRUESOME SCENES

Mobs dragged dead Ethiopian soldiers through the streets on Thursday, and wild-eyed gunmen posed with the corpses.

The bloody scenes recalled the shooting down by militiamen of two U.S. Black Hawk helicopters in 1993 during a failed U.S. mission to hunt down Mogadishu warlords.

With some of the clan militia who used to rule the capital fighting alongside the Islamists, the battles have torn to shreds a brief and shaky truce between the Ethiopian military and the city's dominant clan, the Hawiye.

Analysts said Addis Ababa seemed bent on an all-out push against the insurgents, who have been emboldened by recent strikes including the downing of an airplane serving an African peacekeeping mission, and ambushes killing soldiers.

While Christian-led Ethiopia clearly hopes the offensive will crush the rebels once and for all, many experts said it may have the opposite effect of further alienating Mogadishu's population or attracting foreign Muslim jihadists.

Somalia's ambassador to Ethiopia, Abdikarin Farah, said the attacks were limited to one insurgent stronghold and were aimed at flushing out "international terrorists".

He said action had only been taken after Mogadishu elders admitted they had failed to convince the rebels to disarm.

"It is targeted at a small area of the city where the terrorists are entrenched," he told reporters in Addis Ababa.

"Many terrorists and Islamists have been captured and many were killed, but I have no figure to give you at this time."

The White House told the U.S. Congress on Thursday foreign militants were still able to find a safe haven in Somalia.

RECONCILIATION?

Some of Friday's heaviest fighting rocked streets around the main soccer stadium, where witnesses said Ethiopian troops and rebels had dug trenches just a few metres apart.

One Islamist gunman said the Ethiopians were pinned down.

"We killed a lot of them and burned their trucks," Hassan Osman told Reuters. "Right now, they control only the stadium."

Local media said panic-stricken civilians continued to flee the city, many of them piling their possessions on donkey-carts. The United Nations said 12,000 left in the last week alone.

Despite the carnage, Prime Minister Ali Mohamed Gedi was confident a major reconciliation conference scheduled to take place in Mogadishu in mid-April would still go ahead.

The mandate for the administration, which is the 14th attempt to restore central rule in Somalia since 1991, runs out in 2009, after which in theory there should be elections.

The African Union (AU) has sent 1,200 Ugandan troops to help the government, but they have been attacked. Other African nations are balking at sending more soldiers to boost the AU force to its planned strength of 8,000. (Additional reporting by Farah Roble; Tsegaye Tadesse in Addis Ababa, Steve Holland in Washington, Laura MacInnis in Geneva and Michelle Nichols in New York)

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