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By Ibrahim Mohamed and Abdi Sheikh

MOGADISHU, Aug 5 (Reuters) – Somali kidnappers freed two Italian aid workers who had been held hostage in the chaotic Horn of Africa country since May, local sources and the Italian government said on Tuesday.

One Somali elder involved in the negotiations said a ransom of between $700,000 and $1 million was paid before the pair left for Nairobi in neighbouring Kenya.

In Rome, Foreign Minister Franco Frattini said the two former hostages were in good health.

Jolanda Occhipinti and Giuliano Paganini were abducted on May 21 when Somali gunmen stormed the offices of the Rome-based group, Cooperazione Italiana Nord Sud (CINS).

Mohamed Hussein, a worker at Mogadishu's international airport, said he saw the Italian man and woman arrive on Tuesday.

"They were brought in a car with masked faces wearing dirty clothes which looked like they hadn't been washed since they were abducted three months ago," Hussein told Reuters.

Suspicion for kidnappings in Somalia generally falls on clan militia and Islamist insurgents who are fighting the interim government and its Ethiopian military allies.

Gunmen are still holding hostage two other foreign aid workers -- a Kenyan and a Briton -- and several other Somali humanitarian staff abducted earlier this year.

The kidnappings and attacks are hampering the work of aid agencies at a time when U.N. officials say Somalia ranks as one of the world's worst humanitarian crises along with Sudan's Darfur region, Congo, Iraq and Afghanistan.

More than 1 million of Somalia's 9 million people scrape a living as internal refugees, and their plight has been worsened by record food prices, hyper-inflation and drought.

The insurgency has killed more than 8,000 civilians since the start of last year, according to a local human rights group. (Additional reporting by Guled Mohamed in Nairobi; Writing by Daniel Wallis, editing by Mary Gabriel) (For full Reuters Africa coverage and to have your say on the top issues, visit: http://africa.reuters.com/)

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