Foreign peacekeepers handcuffed machete-wielding arsonists Monday in a show of force aimed at quelling violence in East Timor's capital.

Mobs continued burning houses and anti-government protesters called for the prime minister's resignation as heavily armed Australian troops patrolled the city on foot, in armored vehicles and by helicopter.

Sporadic clashes that erupted last week between the army and dismissed soldiers in the seaside city of Dili has escalated into gang attacks, looting and burning by ordinary people frustrated by poverty and unemployment.

At least 27 people have been killed and more than 100 wounded.

Political leaders including President Xanana Gusmao held urgent meetings to find a way out of the country's worst crisis since its bloody break from Indonesia seven years ago.

Gusmao — beloved as a hero of East Timor's independence — urged protesters rallying outside his palace to be patient.

"Stop fighting ... calm down," Gusmao told the crowd. "Don't take up swords. Don't burn houses. Stop dividing the nation."

The crowd chanted "Viva Gusmao! Viva Gusmao!"

Many demonstrators want Gusmao to dissolve parliament and Prime Minister Mari Alkatiri to step down. Alkatiri has been blamed for failing to stop the unrest, which was triggered by the March firing of 600 disgruntled soldiers from the 1,400-member army.

After staging deadly riots last month, the sacked troops fled the seaside capital, setting up positions in the surrounding hills and threatening guerrilla war if they were not reinstated.

"The reality is that the government doesn't have the power to stop the violence," said protester Nino Perera, 30, an economics lecturer at Dili University.

One leader of the renegade forces, Maj. Agosto De Araujo, said the ousted troops had sent a message to Gusmao offering to join peace talks.

"We are ready to be called back to the negotiating table at any time," De Araujo told The Associated Press by telephone.

Arson continued Monday, though there was less chaos than over the weekend, when gangs armed with machetes, clubs and spears rampaged through the city. Provoking much of the violence are accusations, often unfounded, that one person or another harbors sympathy for Indonesia, which pulled out of East Timor in 1999 after 24 years of often brutal rule.

Terrified residents took advantage of the lull in violence to stream out of Dili, a city of around 250,000, into makeshift camps. Over a fifth of the entire population, or more than 50,000 people, already has left, the U.N. estimates.

As spectators looked on, Australian forces briefly detained youths caught lighting fires. The foreigners lack arrest powers and the suspects were soon freed.

Businesses and schools remained closed in Dili amid mounting shortages of fuel, food and water. Long lines formed at a few open gas stations.

Portugal, East Timor's former ruler for four centuries, said it will deploy 120 paramilitary police by the end of the week, three weeks ahead of schedule.

Non-governmental organizations said many areas were simply too dangerous to receive deliveries of aid.

"If the security situation does not improve, it is possible that the humanitarian crisis could worsen significantly," Luis Vieira, a spokesman for a group of aid agencies, said in a statement.

There is a serious threat of disease outbreaks, he said.

International troops began arriving last week to help put down the most serious threat to the nation of around 1 million.

The United Nations administered the territory for 2 1/2 years, before formal independence was declared in 2002. The U.N. peacekeeping force wrapped up operations this year.

Australian Prime Minister John Howard said the 1,300 Australian soldiers in Timor face serious dangers.

"You're dealing with a whole lot of disparate, uncontrolled gangs," Howard told the Australian Broadcasting Corp. "The fundamental problem in East Timor is that the country has not been well governed."