The blasts, thought to be the work of Al-Qaeda, came a day after the United States warned of an imminent terrorist attack and closed its embassy in the city.

Witnesses reported one big explosion at about midnight local time followed by two smaller ones 15 seconds apart in the western part of the city. Smoke could be seen rising from the area of the blasts. The streets were crowded with late night crowds because of Ramadan, the holy month when Muslims fast during the day.

A US embassy spokesperson said the attack, which the Saudi authorities said was perpetrated by terrorists, targeted the B2 compound in the Nakheel neighbourhood near the al-Muhaya shopping centre. It is a residential area which houses mainly Saudis, Muslim expatriates working at the nearby royal palaces and a few foreigners. It was a soft target, not as heavily protected as the compounds housing westerners. A British couple and a British woman were believed to have been staying in the compound. Only the husband has been accounted for, a Foreign Office spokesman said early today.

Police cars and ambulances raced toward the blasts. Residents and diplomats said some 10 houses were ablaze and at least 24 people feared dead.

"I saw a lot of people injured and I believe there are a lot of people dead," Bassem al-Hourani, who said he was a resident at the targeted compound, told the Al-Arabiya television network.

The Al-Jazeera satellite television station reported there was a shootout in the compound when it was struck by suicide bombers.

"The compound is purely residential," Hourani said. "It has no American residents. It mainly houses Lebanese, Jordanians, Egyptians and Palestinians. No Americans at all here." The foreigners said to be living there included one French, one Italian and two German families.

The official Saudi Press Agency quoted an Interior Ministry statement saying that it was a terrorist attack, and a Saudi television correspondent said witnesses told him two cars had been driven into the compound and exploded inside. "I can see one of the cars, which is completely destroyed, and I can see human remains," said the reporter, who was allowed to enter the compound. "We don't know how many terrorists were in the cars."

A Jordanian resident of the compound who identified himself only as Alaa, said he heard heavy gunfire before the explosion. "I heard shots, many shots, and then one big explosion. "Many villas were damaged, four or five even collapsed. My house was far away but my windows were shattered," he said. "There is a sense of hysteria here and I am shaking as I speak."

Raid Qusti, a local journalist, said the explosions occurred in an area of royal palaces and VIP mansions and villas about six miles from the city centre.

"It's strange how an explosion could occur in that area, bearing in mind the strict security," he said. Security had been so tight that even VIP cars were being regularly checked for explosives. A Saudi government official confirmed that the attackers had exchanged gunfire with the guards. Most of the casualties were children, he said, because their parents were out shopping.

The attacks came as American diplomatic missions in Saudi Arabia were closed yesterday after a terror alert. Saudi Arabia has witnessed a surge in Islamist violence linked to Osama Bin Laden's Al-Qaeda network. Five militants have died in clashes with security forces since Monday, when the authorities said they had foiled a planned attack on Muslim pilgrims in Mecca.

Suicide bombers killed 35 people, including nine Americans and two Britons, in an attack on western residential compounds in Riyadh on May 12. Saudi Arabia blamed Al-Qaeda and launched a crackdown on Muslim militants.

The US issued its alert after the Islamist group, Mujahidin of the Arabian Peninsula, called for an attack on foreigners on its website. The group posted a similar message 24 hours before the May attack. The group, fighting to overthrow the Saud dynasty, is believed to be linked to Al-Qaeda.

In an audio tape released last month Bin Laden threatened suicide attacks in the US and elsewhere. His supporters have threatened both Saudi rulers and western expatriates who hold key jobs in the kingdom. There are some 35,000 American and up to 30,000 British citizens in Saudi Arabia.

The Saudi ambassador to Britain, Prince Turki Al-Faisal, condemned last night's attack as "a terrible event carried out by evil people".

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