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MOGADISHU | Sun Jan 11, 2009 6:53am EST

MOGADISHU (Reuters) - Fighting between rival Somali Islamist groups and hardline insurgents on Washington's foreign terrorist list killed dozens of people north of the capital Mogadishu on Sunday, witnesses said.

An Islamist insurgency has been battling government and Ethiopian troops for the past two years, ever since Addis Ababa sent forces to oust the Islamic Courts Union from Mogadishu.

More than 16,000 civilians have been killed in the insurgency, a million people have been forced from their homes and more than a third of the population depend on aid.

But an estimated 3,000 Ethiopians are now withdrawing and some Islamist factions appear to be turning on al Shabaab fighters, a hardline insurgent group that wants to impose a strict version of Islamic law traditionally shunned by Somalis.

Analysts say while the Ethiopian withdrawal could usher in a new chapter of violence, it may also be a window of opportunity to bring some Islamist groups into the political process and form a broad, inclusive government.

Witnesses said more than 20 people, mostly fighters, were killed in Sunday's battles between Hareka al Shabaab al Mujahideen, or the Mujahideen Youth Movement, and another Islamist group in Gurael, a trading town in central Somalia.

Sheikh Abdullahi Abu Yusuf, spokesman for the Islamist group Ahlu Sunna Waljamaca, said its fighters had killed 30 al Shabaab militants and seized most of their weapons.

Resident Ahmed Ali told Reuters by telephone he had seen two dead, including an al Shabaab leader, and said Ahlu Sunna Waljamaca was in control of the town after repulsing an attack.

A doctor at Istarlin hospital in Gurael said it had received 20 wounded on Sunday and more were on their way.

The fighting followed clashes a day earlier between al Shabaab rebels and moderate Islamists in Balad, 30 km (19 miles) north of Mogadishu, on Saturday.

Al Shabaab, which spearheaded attacks last year to become the face of the insurgency, is also battling Ethiopian and government soldiers elsewhere outside the capital.

While the fighting may be a struggle between Islamist groups jostling for position as the Ethiopians go, local militias angry with al Shabaab's acts are reported to be helping.

Washington accuses the group of having close ties to al Qaeda. Al Shabaab has been imposing strict sharia law on the towns it controls in southern Somalia -- banning drinking or films and beheading suspected government collaborators.

Ahlu Sunna Waljamaca accuses al Shabaab of hunting down and killing its religious leaders and desecrating graves.

Somalia's interim President Sheikh Aden Madobe said on Saturday that al Shabaab was the biggest threat to stability in the Horn of Africa nation and appealed for international help to build up Somali security forces.

(Reporting from Mogadishu; Writing by David Clarke; Editing by Elizabeth Piper)

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