The operation began on Wednesday morning in Arghandab district villages near Kandahar, two days after hundreds of Taliban rebels swarmed into the area blowing up bridges and planting landmines in preparation for battles, as thousands of families fled ahead of the offensive.

More than 600 rebels had apparently taken over about eight villages in Arghandab, after storming Kandahar city's central jail and freeing more than 1,000 inmates, including 350 Taliban fighters who are believed to have rejoined the ongoing insurgency.

Very few prisoners were recaptured since Friday's jail break, seen as a major victory for the Taliban, which has substantial support from the south, and an embarrassment to the U.S.-allied government of President Hamid Karzai, who also hails from Kandahar.

The breakout came just one day after a donors' conference in Paris pledged billions of dollars to Karzai's regime, on the condition it improves the security situation in this war-torn country.

Analysts say the Taliban's capture of the villages this week was a significant show of the movement's growing power in the country.

Taliban spokesmen said their fighters had grouped in Arghandab, 20 kilometers (12 miles) north of Kandahar, to launch attacks in the city itself, the birthplace of the Islamic militant movement that ruled much of Afghanistan from 1996 to 2001.

Initial reports said 23 "local and foreign terrorists" and two Afghan soldiers were killed in Wednesday's battles and by NATO helicopter gunships.

NATO and Afghan sources said at least 1,000 Afghan and Canadian troops were taking part in the operation and reported "only minor" clashes.

There was little information available on the fighting in Arghandab, which was declared a closed military zone. Roads linking the southern villages to Kandahar, where a night curfew was imposed, were also sealed off.

AFP quoted the head of Kandahar provincial council, Ahmad Wali Karzai, who is also the president's brother, as saying the operation had forced 1,500 families to leave their homes and abandon crops that were ready for harvest.

The Arghandab district is a lush agricultural valley known for its vineyards, pomegranate orchards and hashish production, as well as irrigation ditches, providing good fighting and hiding positions for the rebels, according to analysts.

Its proximity to Kandahar allows the Taliban easier access to attempt a comeback to the city by launching attacks there and further weakening the government, something the 150,000-strong Afghan forces and 60,000-member U.S.-led NATO forces from 40 countries apparently dread.

The escalating fighting in the southern province came as the Taliban claimed responsibility for a bomb blast in neighboring Helmand province on Tuesday, which the British Defense Ministry said had killed four of its troops, bringing the total fatalities of British soldiers in Afghanistan to 106.

Two more NATO soldiers were also killed and 10 others injured when their patrol was attacked on Wednesday, raising the number of foreign troops killed this year to 90.

The large numbers of Afghan and NATO forces – known as the International Security Assistance Force, or ISAF – have failed to prevent a dramatic resurfacing of the Taliban in the past two years, where the group has managed to regain strength, influence, weapons and recruits.

The group says it has been finding eager recruits as active fighters and that their numbers were growing into the thousands, a figure that would have been considered impossible almost seven years ago when they were ousted from power by the U.S.-led war following the Sept. 11, 2001 attacks on the United States.

The movement's officials have boasted regaining control of large parts of the countryside, where they have found welcoming and supportive residents disillusioned with administrative corruption.

Analysts say the gaps created in the selectivity and corruption in the reconstruction process – part of ISAF's task for the country's development – has allowed the Taliban to make a gradual comeback by winning back the hearts of the less privileged.

Recent reports said the Islamic group has even set up its own courts, because people were taking their cases away from the government courts and seeking their help for justice in cleaning up common criminality.

Commentators argue that military and security operations alone, such as Wednesday's offensive, to subdue the Taliban rebellion will not likely succeed without addressing the political, social and economic grievances of the Afghan people.