By Joe Ariyaratnam
JAFFNA, Sri Lanka, Jan 12 (Reuters) - Four policemen and a soldier were injured in a grenade attack and a youth was shot on Thursday in Sri Lanka's tense, army-held northern enclave of Jaffna as escalating violence stokes fears of renewed civil war.
Heavily armed troops blamed the attack on Liberation Tigers of Tamil Eelam (LTTE) rebels and conducted spot checks on streets still scarred by years of past shelling. Shopkeepers closed their stores and residents stayed indoors.
"It was the LTTE that threw a grenade at our sentry point and we fired in the air," one army corporal involved in the incident told Reuters, asking not to be named.
A 16-year-old boy who works in a nearby shop suffered two gunshot wounds, apparently hit by bullets as they fell to the ground, nurses said. He was the latest civilian casualty in the crossfire of Sri Lanka's protracted conflict.
"I was crossing the road when I was hit by a piece of metal," said dazed Dharmalingam Rajakumar, lying in a hospital bed next to one of the injured policemen in a run-down ward as heavily armed officers stood guard.
The incident was the latest in a rash of grenade attacks and deadly claymore mine blasts in the Jaffna peninsula, which the rebels see as the cradle of Sri Lanka's ethnic Tamil civilisation and want back.
The Tigers have threatened to resume their armed struggle unless the government gives them a separate Tamil homeland with wide political powers in the north and east. They already run a de facto state, and say they are ready to use suicide bombers as in the past if war resumes.
They also helped scuttled the chances of the more conciliatory candidate at November's presidential election, which analysts say shows the Tigers are not ready to talk peace and have used the truce strategically to regoup and rearm.
ECONOMY IN FIRING LINE
The rebels were not immediately available for comment on Thursday's incident, but routinely deny any involvement in attacks that have strained a 2002 ceasefire to its limit. Diplomats fear continued escalation could spiral back into an all-out war that would choke the $20 billion economy.
Norwegian peace envoy Erik Solheim is due in Sri Lanka from Jan. 23 to 26 to try to break a deadlock over where to hold crunch talks between the government and the Tigers. Officials however played down hopes of an imminent breakthrough.
The rebels want talks in Europe, preferably Oslo. The government has said it is willing to have talks in Asia, and possibly South Africa. But there is still no sign of a face-saving compromise for both sides.
"We hope that this visit will break the ice and settle the deadlock of the venue," Nimal Siripala de Silva, parliament's leader of the house, told reporters after a cabinet briefing.
"The government's commitment to a negotiated settlement is not perturbed by the LTTE attacks. The government will not start the war. We will not be provoked by the LTTE," he added.
Diplomats and defence experts say the two sides are engaged in an undeclared war that has hammered the stock market and started to erode the island's lynchpin tourism industry.
Ordinary Sri Lankans are also feeling the pinch.
"Today business is very, very bad, because people don't come to town like in the past. People are afraid," said Victor Anandanayagan, 42, tending his empty Jaffna grocery store.
"Incidents are very frequent and sudden," he added. "We were doing about 20,000 rupees ($196) business a day. Now we're not even doing 3,000 rupees a day."