They arrived in the town of Baidoa a day after Islamic militias advanced to within 20 miles of the beleaguered Government’s headquarters.

The military moves, coupled with strong rhetoric from both sides, prompted analysts to warn that the country was slipping closer to all-out war.

John Prendergast, of the International Crisis Group think tank, said: "We are on a precipice right now.

"If one or the other makes a more forceful move - whether the Islamists move further up the road or if the Government manages to attract foreign intervention - it could push this into war, which some of the hardliners on each side want."

Ethiopia is a close ally of President Abdullahi Yusuf and has watched with growing alarm as the militias fanned out across the country since seizing the capital Mogadishu from a US-backed alliance of warlords last month.

They have set up a series of Islamic courts and imposed hardline Sharia law in the areas they control.

The US believes their leader, Sheikh Hassan Dahir Aweys, is a terrorist and that his movement is sheltering al-Qaeda suspects.

Today, both the Ethiopian and Somali governments denied the presence of foreign troops in Baidoa.

However they were contradicted by people in the town itself.

"About 25 vehicles have arrived here from Ethiopia. Some are technicals and others are lorries carrying troops wearing Ethiopian uniforms, so there are probably more than 100 soldiers here," said a source close to the transitional government.

More than 100 vehicles crossed the border at Dollow, he added, on their way to strengthen defences between the Government’s base and the town of Burhakaba, 20 miles away, where Islamic militias had arrived yesterday.

The militia’s advance put the government on a defence footing.

President Yusuf’s tottering administration is at least the 12th attempt to find peace in Somalia since the collapse of Siad Barre’s regime in 1991.

It sits in an old grain warehouse in the dusty town of Baidoa about 150 miles from Mogadishu.

The capital and much of central and southern Somalia are now in the hands of the Islamic militias, leaving the Government with little influence.

Peace talks due to take place in the Sudanese capital Khartoum this week have stalled, with government ministers refusing to deal with people they see as extremists.

The United Nations today urged both sides to stick to a deal struck last month and to resume negotiations.

François Lonseny Fall, the secretary-general’s special representative for Somalia, said: "I appeal to both sides to respect the ceasefire and other provisions of the Khartoum agreement, including their commitment to refrain from any provocations that could lead to an escalation of the situation."

Ethiopia has a history of backing President Yusuf, and supported him in a war against Islamists in the 1990s.

However, Ethiopian ministers have consistently denied sending troops to strengthen their weakened ally although analysts believe thousands of soldiers have been moved close to the border.

Berhan Hailu, Ethiopian information minister, told the Reuters news agency that it was tracking the Islamists and would intervene if necessary.

"We will use all means at our disposal to crush the Islamist group if they attempt to attack Baidoa, the seat of the transitional federal government," he said.

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