The Sydney suburbs have erupted in a second night of racially-charged violence which has exposed ugly tensions beneath Australia's good-humoured exterior.

Local media reported a "terrifying escalation" in the conflict, as 70 car loads of Lebanese youths arrived in the predominantly white suburb of Cronulla - the flashpoint for yesterday's running battles - intent on revenge.

The Sydney Morning Herald described how the youths began smashing up shops and cars with baseball bats and threatening passers-by. There were more disturbances in the neighbouring suburb of Brighton-Le-Sands where bricks were thrown at passing cars.

Around 600 people, some armed with pistols and crowbars and summoned by mobile phone text message, gathered to confront one another on Maroubra Beach, in a mainly white suburb to the south of the city.

Around 30 people were injured, including a man of Arab appearance who was stabbed in the back during the fighting. At least 16 arrests were made as police fought back with batons and pepper spray.

Elsewhere, about 300 people of Arab descent demonstrated against Sunday's attack outside one of Sydney's largest mosques, Lakemba, amid tight police security. Surrounding roads were blocked and iron bars seized as police tried to prevent the protestors from making their way to the fighting on Maroubra beach.

Politicians and community leaders were appealing for calm and struggling to explain how the worst instance of race violence in Australia's modern history has broken out in a city which considers itself a cultural melting pot.

Triggered by attacks on two volunteer lifeguards on Cronulla by a Lebanese gang, the tension has now escalated and police fear further clashes in coming days.

Australia has long prided itself on accepting immigrants - from Italians and Greeks after the Second World War to families fleeing the Middle East and Southeast Asia. In the last census in 2001, nearly a quarter of Australia's 20 million people said they were born overseas.

Tensions between youths of Arabic and Middle Eastern descent and white Australians have, however, been rising in recent years with anti-Muslim sentiment fuelled by the Bali bombings that killed 202 people, including 88 Australians, in October 2002.

John Howard, the Prime Minister, called the violence "sickening" but denied it was symptomatic of a vein of racism running through Australian society. He also dismissed suggestions that his own warnings over the threat of homegrown Islamist terrorism had contributed to the tensions.

"I do not accept that there is underlying racism in this country," he said.

"This nation of ours has been able to absorb millions of people from different parts of the world over a period of now some forty years and we have done so with remarkable success and in a way that has brought enormous credit to this country," Mr Howard said.

This view was challenged by television footage of yesterday's, in which some of the 5,000 rioters had draped themselves in the country’s flag to hurl racist abuse at any non-whites. A number of neo-Nazi groups have been accused of orchestrating clashes and fanning the flames of unrest.

Muslim leaders in the city have blamed the media, particularly some influential phone-in radio shows, for inciting listeners to riot. A white nationalist group, the Patriotic Youth League, was said to be attempting to trigger similar unrest in Brisbane.

Roland Jabbour, chairman of the Australian Arabic Council, said: "Arab Australians have had to cope with vilification, racism, abuse and fear of a racial backlash for a number of years, but these riots will take that fear to a new level."

Community Relations Commission chairman Stepan Kerkyasharian told Sky News: "What we have seen yesterday is something I thought I would never see in Australia and perhaps we have not seen in Australia in any of our lifetimes, and that is a mass call to violence based on race."

Christian leaders also expressed outrage. "There is no place in our free, democratic and civil society for racist and mob violence," said Sydney’s Anglican Archbishop Peter Jensen.

"We must look to the root causes of this social disharmony, seek authentic information about them, and deal with those matters."

Cardinal George Pell, the Catholic Archbishop of Sydney, said: "All people of goodwill should reject the extremists in both camps, and work together so that this is the end of major disturbances, not the beginning of something worse."

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