The military's relentless bombardment of an Abu Sayyaf hideout in Basilan resulted in a clash with the group that has admitted a link with Saudi-born Osama bin Laden and his Al Qaida terrorist network.

Southern Command deputy chief Marine Col Francisco Gudani said in a radio interview there was heavy fighting in Kapayawan, near Lantawan shortly before 5 am. "We have visual contact with the enemy," he confirmed. "And the Burnham couple (Martin and Gracia, two American hostages) are with the gunmen."

He called on the group to surrender peacefully, "and we guaranty no harm will come your way".

He confirmed that three members of the militant group surrendered recently and felt the "members are short of ammunition, lack food, are hungry and lack the necessary rest. It's only a matter of time before we get them."

Armed Forces spokesman, Edilberto Adan, said: "We expect more accomplishments in the next weeks. We have to continue rescuing the hostages and destroying the Abu Sayyaf. We will not negotiate for any ransom. The kidnappers should release all hostages."

But Abu Sayyaf leader, Abu Sabaya, threatened to behead the American couple if the military did not desist.

The Burnhams were abducted from a resort in Palawan, on May 27. The militants beheaded one American, Guillermo Sobero, on June 12 after President Gloria Macapagal-Arroyo rejected their demand for a specific negotiator.

Sources said the militant have sophisticated weapons, most of them from Afghanistan where the Taliban government is hiding Bin Laden, widely believed to be behind the September 11 attacks on the U.S.

Philippine military officials, meanwhile, reiterated the government's strict no-ransom policy.

Adan said: "President Arroyo has given the military a go-ahead signal to rescue the hostages and crush the Abu Sayyaf. Our government is committed to eradicating terrorism."

The Philippine National Police was placed on heightened alert yesterday following intelligence reports that extremists from Zamboanga, Cotabato and Davao cities had reportedly arrived in Metro Manila.

Officials said the water supply of 700 families in at least five villages in Isabela, Basilan, smelled of gasoline. The hostage takers recently claimed they could poison the province's entire water supply.

Our Manila Bureau Chief adds: The U.S. has warned the militants against harming the Burnhams.

"We strongly condemn the threats to murder innocent people held against their will. We will hold the Abu Sayyaf responsible for the safety and well being of all the hostages," said State department spokesman, Philip Reeker.

The U.S. is sending a large team to Basilan this month to help train the military fight the Abu Sayyaf.

U.S. military forces will not join combat operations, but will bring equipment to help Filipino soldiers fight the Abu Sayyaf, explained the Philippine Armed Forces spokesman.

"Helicopters will help, and fast patrol boats to beef up our naval capability," he said.