The Palestinian Authority was lurching further towards a split today as the power struggle between Hamas and Fatah, the two rival political parties, degenerated into violence.

At least nine people were injured this morning when gunmen from the ruling Hamas party opened fire from a car on bodyguards protecting Samir Masharawi, a leading Fatah activist in Gaza City.

The bodyguards hit back, peppering the car with bullets and injuring at least one of the attackers. Eight more people were injured in sproadic gun battles as supporters from both side streamed to the scene. Five children between the ages of eight and 14, who were on their way to school, were among the casualties.

Later this afternoon, Hamas gunmen detonated two small bombs before firing into a funeral procession in southern Gaza. Fatah gunmen dropped to the ground and returned fire. A number of mourners, including children, were injured.

Hamas later claimed that Mr Masharawi’s bodyguards had kidnapped three members of its military wing after the earlier shootout and the gunmen had been sent to free them.

The most recent round of bloodshed broke out hours before international mediators were due to begin discussing whether to ease the financial restrictions imposed on the Hamas-led government, which was democratically elected in January ending the moderate Fatah's grip on power.

Most members of the security forces remain loyal to Fatah, and instead of trying to disarm them, Hamas has set up its own militia to respond directly.

Both sides are training for escalating clashes, but so far the violence has been localised and small-scale. Despite deep disagreements, Palestinians have pulled back from the brink of all-out conflict in the past.

The economic crisis is fraying nerves on all sides. Five weeks after Hamas officially took control, there are severe shortages of medicines and public workers have not been paid.

Representatives of the Quartet of Middle East mediators - the United States, United Nations, European Union and Russia - were meeting in New York this evening to discuss ways of restoring aid to the authority.

Hamas is listed as a terrorist organisation by both the US and the EU, and both have severed payments that kept the cash-strapped region afloat. Israel is holding back the $50 million it collects in border taxes every month.

Europeans are said to favour a trust fund administered President Mahmoud Abbas, the leader of Fatah, bypassing Hamas. The US is hesitant to renew funding but has said it hopes to discuss a proposal to relieve the shortage of medicine and health supplies.

At a rally in Gaza, Palestinian Prime Minister Ismail Haniyeh of Hamas called for an end to the sanctions, but added defiantly: "We are not going to surrender, cave in to this siege, compromise the rights of our people or recognise the legitimacy of the occupiers on our land [Israel]."

President Abbas has appealed to Western powers to free up the funds. "Our main goal at this time is ... to end the economic siege of the Palestinian people," he told reporters in the West Bank city of Ramallah, while ordering security forces to put an end to the internal violence.

Israeli soldiers said today that they had intercepted a fishing boat trying to take 500kg (1,100lb) of explosives onto a Gaza beach.

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