"I hear reports of close to 3,000 injured in Mogadishu's hospitals ... and well over 1,000 might have died. Some of them are Somalis, but a very significant proportion of them are not Somalis," Prime Minister Meles Zenawi told reporters in the Ethiopian capital, Addis Ababa. He cited internal military reports.
His reference to non-Somalis follows his allegation that the Islamists are recruiting foreign Muslim fighters.
Somalia's Council of Islamic Courts has been under heavy fire since Sunday, when Ethiopia sent fighter jets across the border to help Somalia's internationally backed government push out the Islamists. Ethiopia bombed the country's two main airports and helped government forces capture several villages.
The Somali government Tuesday called on the Islamists to surrender and promised them amnesty if they lay down their weapons and stop opposing the government, spokesman Abdirahman Dinari said from Baidoa, the seat of the government.
Ethiopian Prime Minister Meles Zenawi said his forces have completed about half their mission.
"As soon as we have accomplished our mission — and about half of our mission is done, and the rest shouldn't take long — we'll be out," Meles said.
Sheik Sharif Sheik Ahmed, a top leader of the Islamic group, said he asked his troops to withdraw from some areas.
"The war is entering a new phase," he said. "We will fight Ethiopia for a long, long time and we expect the war to go everyplace."
Ahmed declined to explain his comments in greater detail, but some Islamic leaders have threatened a guerrilla war to include suicide bombings in Ethiopia's capital, Addis Ababa.
Skirmishes were continuing despite the retreat; a witness in Bur Haqaba said he heard explosions nearby after two Ethiopian jets flew overhead.
"I saw two helicopters, I heard the sounds of bombs at Lego village," said Mohamed Abdulle Siidi by telephone. The village is about 15 kilometers (10 miles) from Lego. The account could not be immediately confirmed.
Ismael Mohamoud Hurreh, a member of Somalia's transitional national government, said Tuesday that "the story of the Islamic courts is coming to an end" and that the government will eventually take the capital, Mogadishu. He declined to give a timetable, however.
Hurreh added that government forces have been training for battle for the past five months, and will be able to defeat the Islamists even after Ethiopia retreats.
"We will hold our line very, very well, don't worry about that," Hurreh told reporters in Nairobi, Kenya.
Earlier Tuesday, the government said the Islamic movement should give up.
"We call for the Islamic courts militia to surrender to the government before they are punished by the government," government spokesman Abdirahman Dinari said from the central town of Baidoa.
Somalia has not had an effective government since warlords overthrew longtime dictator Mohamed Siad Barre in 1991, pushing the country into anarchy. Two years ago, the United Nations helped set up a central government for the arid, impoverished nation on the Horn of Africa.
But it has not been able to extend its influence outside Baidoa, where it is headquartered about 225 kilometers (140 miles) northwest of Mogadishu. The country was largely under the control of warlords until June, when the Islamic militia movement seized control of the capital and much of southern Somalia.
Experts fear the conflict in Somalia could engulf the region. A recent U.N. report said 10 countries have been supplying arms and equipment to both sides of the conflict and using Somalia as a proxy battlefield.
John Prendergast, a senior adviser with the International Crisis Group, said the war "dangerously escalates regional tensions and leaves the Horn of Africa less secure than it has been in a long time."
The African Union, Arab League and a regional group known as IGAD, were to discuss Somalia at meeting on Wednesday designed to resume the peace process.
Patrick Mazimhaka, the deputy chairman of the African Union Commission, expressed support for Somalia's government and defended Ethiopia's military advances.
"If Ethiopia feels sufficiently threatened, then we recognize the right of Ethiopia to defend itself if it thinks its sovereignty and its security are under direct threat."
The Islamic group, which wants to impose strict Islamic rule on the country, has been a source of grave concern by largely Christian Ethiopia. The group's often severe interpretation of Islam raises memories of Afghanistan's Taliban regime, which was ousted by a U.S.-led campaign for harboring Usama bin Laden.
The U.S. government says four Al Qaeda leaders, believed to be behind the 1998 bombing of the U.S. Embassies in Kenya and Tanzania, have become leaders in the Islamic militia.
Islamic troops withdrew more than 80 kilometers (50 miles) to the southeast from Daynuney, a town just south of Baidoa. Advancing government and Ethiopian troops captured Bur Haqaba, one of the Islamists' main bases, after it was abandoned early Tuesday.
"We woke up from our sleep this morning and the town was empty of troops, not a single Islamic fighter," said Ibrahim Mohamed Aden, a resident of Bur Haqaba.
Islamic fighters were also reportedly retreating on two other fronts. On the southern front, government troops captured Dinsor, Dinari said. On the northern front, government and Ethiopian troops entered the town of Bulo Barde, where two weeks ago an Islamic cleric said anyone who did not pray five times a day would be executed. Government and Ethiopian troops were headed for Jowhar, 90 kilometers (55 miles) north of Mogadishu, after driving Islamic troops from Bandiradley, Adadow and Galinsor.
Meles has said he does not intend to keep his forces in Somalia for long, perhaps only a few weeks. He has told visiting dignitaries in Addis Ababa that he aims to severely damage the courts' military capabilities and allow both sides to return to peace talks on even footing.
Meles said he would not send troops into Mogadishu, but instead encircle the city instead to contain the Islamic forces.
No reliable casualty reports were immediately available. Both sides have claimed to have killed hundreds of their enemy, but independent observers were not given access to the battlefield.
Many Somalis are enraged by the idea of Ethiopian involvement because the countries have fought two wars over their disputed border in the past 45 years. Islamic leaders have repeatedly said they want to incorporate ethnic Somalis living in eastern Ethiopia, northeastern Kenya and Djibouti into a Greater Somalia.