Heavy explosions, mortar and machine gun fire rocked an eastern Afghan town, killing at least 43 people and wounding dozens more, in heavy factional fighting Thursday that highlighted the fragility of Afghanistan's newfound peace.

U.S. planes circled overhead but did not intervene in the battle that sent up plumes of smoke over Gardez, capital of the strategically important province of Paktia. The fighting threatened to complicate U.S.-led efforts to destroy pockets of Al Qaeda resistance hiding in Paktia's mountains.

The fighting pitted troops loyal to Bacha Khan, a local warlord aligned with Afghanistan's interim administration and working with U.S. special forces, against troops for the town's government council or shura.

Mortar fire shook walls at Gardez's hospital. Dr. Najib, the chief surgeon who like many Afghans uses just one name, said they treated 28 people in the 24 hours since fighting erupted Wednesday, and that nine of them had died.

``The patients are afraid. We are close to the front lines, and they are hearing artillery and mortar fire,'' he said.

A bloodstained hospital corridor served as a makeshift morgue, with eight bodies covered in blankets.

At least 15 shura soldiers and about 18 civilians were killed, said Haji Saifullah, an elderly and powerful tribesman who heads the council. He said Gardez would never allow Khan to take over.

``No, no, no, we will never accept him. He is a smuggler and a tyrant and a killer,'' Saifullah said, speaking at his headquarters on Gardez's northern edge.

Ten of Khan's fighters were killed and 25 injured, said one of his spokesmen, Jilani. The Associated Press saw a half dozen of them in the hospital, some badly wounded.

Khan, a Pashtun tribal leader, is trying to install himself as governor of Paktia despite strong local opposition. Khan is closely aligned to the interim Afghan administration installed in December U.S. and British bombing routed the Taliban.

Khan's appointment as Paktia's governor was confirmed by the interim administration last week. Khan's brother is the administration's minister of frontier affairs.

Mortars fired by Khan's forces from two commanding hills southwest of Gardez landed in the center of the dilapidated town. A taxi ferried out a wounded fighter, bleeding from a stomach wound, on the road north of Gardez. Shura forces were mounting their defense from an old hill fortress in the center of town, which was deserted, its shops shuttered.

Saifullah said some of Khan's forces pushed their way into Gardez on Wednesday. Shura troops repelled most of them and searched from house-to-house for stragglers, seizing about 200 prisoners, he said.

``This is a guerrilla war,'' he said.

An all-out conflict between Khan and the Gardez shura had been brewing for months. Khan accuses shura members of being Taliban and al Qaeda sympathizers, which they deny.

In December, Saifullah supporters accused Khan of calling in a U.S. airstrike on a convoy of Gardez shura members by wrongly identifying them as Al Qaeda and former Taliban members.

Twelve members of the convoy were killed Dec. 21 as they tried to make their way to Kabul to congratulate Hamid Karzai on his inauguration as head of the interim government.

The fighting represents a challenge to Karzai's attempts to restore stability to the wartorn country. Karzai has appealed for international support for a larger multinational peacekeeping mission to maintain order nationwide. Karzai arrived Thursday in London for talks with Prime Minister Tony Blair, after meeting President Bush in Washington.

Fariba, a 35-year-old Gardez woman, and her six children fled their house moments before a mortar round struck.

``Now our house is destroyed. We ran away, we were very afraid,'' she said, sheltering with her children at her sister's house on Gardez's northern outskirts.

In Kabul, the Afghan capital 60 miles to the north, a spokesman for the Defense Ministry said its forces would not interfere in the fighting. Spokesman Saranul Mirjan described the battle as an internal matter between the opposing factions.

Saifullah and Gardez police chief Said Isaq said about 30 U.S. special forces troops were in an old fortress to the town's southwest but had told locals that they, too, would not intervene. The special forces, according to Saifullah and Isaq, said they were part of an operation hunting al-Qaida members believed to be in mountains west of Gardez.

Khan's son, Abdul Wali Khan, speaking by telephone from Gardez, claimed his father's forces captured the town prison, a local government office, the market and a nearby village, Zakhera. Shura forces said they later recaptured the prison.

Paktia province has been a major target of U.S. military action since the Taliban fell. A powerful Taliban commander, Jalaluddin Haqqani, held sway over much of Paktia where he allowed Usama bin Laden's al Qaeda network to establish training camps and use tunnel complexes built with U.S. help during the 1980s Soviet invasion of Afghanistan to house his warriors and hide arms caches.

U.S. warplanes pounded cave complexes at Zawar in Paktia frequently until mid-January, and special forces troops are in the province hunting Al Qaeda fugitives and seeking intelligence that could prevent new terror attacks.