(Updates wounded, adds official, witness quotes, background)

NEW DELHI, Oct 11 (Reuters) - A small bomb exploded just after evening prayers at an important and crowded Muslim shrine in northwestern India on Thursday, killing at least two people and wounding 17, according to police and officials.

The blast occurred at around 6.15 p.m. (1245 GMT) just outside the famous Ajmer Sharif shrine, or dargah, in the city of Ajmer in the desert state of Rajasthan just before the end of the Ramadan fasting month.

Around 200 people were in and around the shrine at the time, many breaking their fast after prayers, police said. The bomb had been placed under a tree.

"A big crowd had gathered outside the main shrine to break their fast," Lalit Maheswari, additional police chief for Ajmer told Reuters. "The bomb was placed in a bag."

"We have recovered some mobile instruments, so we think some sophisticated device was used, but an investigation is going on."

Television pictures showed a man being stretchered from the site with his clothes apparently torn from his body and what appeared to be a corpse with his eyes open.

"There was total chaos, people were rushed to the hospital," Furkan Ali Chishty Niazi, an official from the dargah told Reuters by telephone.

Local city official Naveen Mahajan said two people had died, 17 were wounded, and one was in critical condition.

"We have cordoned off the area, and a bomb squad team is searching the dargah premises," he told Reuters.

The shrine, which contains the tomb of the Sufi saint Khwaja Moinuddin Chisty, is one of the most important pilgrimage sites for Muslims in India.

Hindus and Sikhs also visit the shrine, which lies some 350 km (215 miles) southwest of the capital New Delhi, and is seen as a symbol of communal harmony.

Pakistani leaders, including Pervez Musharraf, Mohammad Zia-ul-Haq and Benazir Bhutto, have all visited the shrine during state visits, which has also attracted Bollywood stars like Aishwarya Rai Bachchan, a former Miss World.

Shortly afterwards, in disputed Kashmir to the north, at least two suspected Muslim militants stormed a police camp in the summer capital, Srinagar, firing guns and throwing grenades, police said.

The gunbattle was still continuing and there were no further details, they added.

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