By Abdi Sheikh
MOGADISHU, Nov 13 (Reuters) - Islamist insurgents briefly occupied three small towns on the outskirts of Somalia's capital Mogadishu on Thursday, but melted away as Ethiopian forces headed south from the city to confront them.
The Islamists control most of southern Somalia and on Wednesday seized Merka, a strategic port 90 km (56 miles) southwest of Mogadishu, giving them their closest foothold yet to the capital.
Masked fighters from the al Shabaab group -- on Washington's list of foreign terrorist groups -- moved into the towns of Elasha, Arbis and Lafoole overnight, terrifying many residents already uprooted by the guerrillas' two-year-old rebellion.
"We could see them wearing masks and marching here and there. We were so afraid we could not leave our houses," resident Bile Farah told Reuters by telephone from Elasha.
"The al Shabaab men disappeared when they heard Ethiopian military convoys were approaching. Now the place is calm and Ethiopian troops are patrolling the area."
The capture of Merka on Wednesday gave the Islamists a new base for their near-daily attacks on the Western-backed interim government and its Ethiopian military allies.
It also looked sure to set back a U.N.-brokered peace process for the Horn of Africa nation, which has been stuck in civil conflict for the last 17 years.
Al Shabaab has rejected a tentative, U.N.-negotiated pact to set up a power-sharing administration between the government and some moderate Islamists opposition figures.
Ethiopia was due to start withdrawing its troops from Mogadishu later this month under that peace plan, but analysts say al Shabaab's presence so close may put a stop to that.
In the early stages of their insurgency, the Islamists tended to take towns briefly before moving out again in a show of strength. But this year, they have often been taking and holding territory.
(Writing by Daniel Wallis; Editing by Matthew Tostevin)