DILI (AFP) -- Gangs battled each other in the East Timorese capital again Tuesday near the palace where President Xanana Gusmao was holding crisis talks to pull his country back from the brink of civil war.

Sporadic gunfire echoed around the city as ethnic gangs from the east and west of the tiny country squared off around the main road linking the airport with the city center.

Groups of youths wearing balaclavas and carrying traditional East Timorese swords, as well as machetes and metal pipes, burned and looted buildings, defying efforts by Australian and other foreign troops to keep the peace.

Thick black smoke hung over the city from fires set by the rival gangs as the violence moved for the first time towards the center of Dili. "Where were the Australians?" one man asked as he watched his home burn in the suburbs. "Why weren't they here?"

Just 100 meters (yards) from the worst of the violence -- in which one man was disarmed by Australian troops of a pistol -- Gusmao met Prime Minister Mari Alkatiri and his Cabinet over the crisis that has paralyzed the country.

Tens of thousands have fled their homes and many have been queuing up desperately at food warehouses.

The unrest began last month when Alkatiri sacked 600 soldiers, or about 40 percent of the armed forces, after they protested over alleged discrimination against soldiers from the east of the country.

This divide between soldiers from the country's east and west is central to the violence that has propelled the country towards civil war. The director of Dili's Valadares hospital said 20 people had been killed in the past week.

"The majority of the army comes from the east (and) the majority of the police from the west, although there are also internal factions along those lines," said Damien Kingsbury of Australia's Deakin University.

During the Indonesian occupation from 1975, police were recruited mainly from the west and the militias which went on the rampage after the vote for independence in 1999 were also stronger in the west, he said.

"Westerners were very much in favor of independence but because there were a few bad people there, militiamen and police and so on, they've been tarred with the same brush by easterners, essentially as collaborators," he said.

Alkatiri's leadership has been challenged by the dissident soldiers and many in the former Portuguese colony blame him for allowing the situation to deteriorate.

But East Timor's Minister for State Ana Pessoa told Portuguese radio Monday the talks would not result in Alkatiri's dismissal, despite widespread calls for him to be sacked.

"I don't think the dismissal of the government is an option for the simple fact that this would be a serious violation of the constitution," Pessoa said.

Just ahead of the latest violence, Australian Lieutenant Colonel Michael Mumford blamed the trouble on criminal gangs.

"Our emphasis right now is taking away from the violent crowds their weapons, their ability to intimidate people," he told reporters. "Once that has been done we can focus more on providing support to other areas such as humanitarian support."

The international forces -- totaling about 2,250 and headed by 1,300 Australians -- were struggling to restore peace and appeared only able to bring localized calm. As soon as patrols move on, the gang fights start again.

Thousands of people were queuing for food for a second day as Australian troops stood outside Dili's main rice warehouse to ensure there was no repeat of the looting of earlier days.

About 10,000 people formed a queue more than a kilometer (half a mile) long for sacks of rice. "I have four people at home starving including my wife and grandchildren," said Francisco Martins, 60. "It's okay to queue for a few hours to get some food for my family rather than die of hunger."

International aid groups had expressed frustration with Australian troops after they initially avoided confronting armed gangs and were unable to protect food warehouses from looting.

The commander of Australian peacekeepers in East Timor rejected suggestions of a humanitarian crisis because ethnic gangs were preventing the distribution of food and water to refugees.

Brigadier Michael Slater said in a televised interview that the Australians had confiscated more than 450 rifles, handguns, shotguns and grenades in 48 hours.