* African Union says Eritrea helping rebels in Somalia

* AU summit drops resolution to boost peacekeepers

* Third day of heavy fighting in northern Mogadishu

(Releads with African Union resolution on Eritrea)

By Christian Lowe

SIRTE, Libya, July 3 (Reuters) - African leaders asked the United Nations on Friday to impose sanctions on Eritrea, saying it was aiding the Islamist rebels fighting government forces in nearby Somalia.

But the African Union, at a summit in Libya, did not adopt a proposed resolution to give African Union peacekeepers in Somalia a mandate to do more than just defend themselves from rebel attacks.

In the third day of heavy fighting in the north of Somalia's capital, Mogadishu, at least 16 people were killed and 30 were wounded, according to hospital officials, taking the death toll since Wednesday to more than 50.

The United Nations, Somalia's government and other groups accuse Eritrea of sending weapons and providing training for the insurgents. Eritrean officials deny that.

The 53-member African Union, meeting in the Libyan city of Sirte, adopted a resolution condemning insurgent attacks in Somalia and backing the government.

The resolution said the Union "issues an appeal to the United Nations Security Council ... to impose sanctions on all outside actors, either in the region or beyond, in particular Eritrea, which provide support to armed groups."

It also asked the UN to impose a sea blockade and no-fly zone to stop weapons and other supplies reaching the rebels.

Western nations and Somalia's neighbours worry that if the rebels, who have links to al Qaeda, succeed in toppling the government, the Horn of Africa nation will become a safe haven for Islamist militant training camps.

PEACKEEPING MANDATE

A senior AU official said earlier on Friday the summit would consider a draft resolution beefing up the peacekeepers mandate but this was absent from the final resolution. Delegates did not explain why the reference was removed.

At the moment, the 4,300 AU peacekeepers from Uganda and Burundi are largely confined to their bases and protect key sites such as the presidential palace, airport and seaport.

The Somali government has been pushing for the AMISOM peacekeeping force to have a a mandate which allows it to help government forces take on the rebels.

The Al Shabaab insurgent group warned on Friday that would make the situation worse.

"If the mandate of African peacekeepers in Somalia now changes into a peace-making mission it will only cause fighting to continue," spokesman Sheikh Ali Mohamud Raage said.

The African Union plan has always been to send 8,000 soldiers but pledges of more troops for the AMISOM force have so far failed to result in more boots on the ground.

Somali President Sheikh Sharif Ahmed met the U.S. Assistant Secretary of State for African Affairs, Johnnie Carson, on Friday at the summit in Libya.

"Carson again confirmed to President Sharif that full U.S support is ready -- training security forces, logistical and financial assistance -- to stop these extremists taking over Somalia and having a base to destabilise the world," an official with the Somali president told Reuters. (Additional reporting by Ibrahim Mohamed in Mogadishu and Abdiaziz Hassan in Nairobi; writing by David Clarke and Christian Lowe; Editing by Richard Balmforth)

AlertNet news is provided by