The BBC's Chris Morris reports from Ankara: The crisis shows no sign of abating

In the latest round of the war of words over the extradition of Kurdish separatist leader Abdullah Ocalan, Italian Prime Minister Massimo D'Alema said that Italy hoped to see a solution "based on the renunciation of violence, the recognition of the rights of the Kurdish people and the right of Turkey to security".

Abdullah Ocalan: Under house arrest, but no extradition

In an open letter to the daily Corriere della Sera on Monday, Mr D'Alema reminded Ankara that Mr Ocalan, who is currently under house arrest in Rome, has issued a statement that his Kurdistan Workers' Party (PKK) has ended its armed campaign in favour of a negotiated settlement.

"It is a pity that the Turkish authorities have not yet taken this opportunity to find a peaceful solution to this long and bloody conflict following the examples of Northern Ireland and the Basque country," Mr D'Alema said.

He also warned Turkey over human rights abuses.

Ankara Correspondent Chris Morris: "Economic retaliation"

"It is not only PKK terrorism which is tearing apart the Turkish state, but also the systematic violation of human rights by the Turkish security forces.

"Europe fights terrorism, but also brutal repression, torture, the assassination of opponents, illegal imprisonment and all other forms used to stifle freedom," Mr D'Alema said.

James Rubin: We are reviewing full range of options

Meanwhile, Washington says it is working with its fellow NATO members Turkey, Italy and Germany to defuse the row.

State Department spokesman, James Rubin, said emotion was running high on all sides and the department was working to bring Ocalan to justice.

Turkish sanctions

Earlier, Mr D'Alema sharply criticised Turkey's decision to no longer allow Italian companies to compete for defence contracts in protest at Italy's refusal to extradite Mr Ocalan.

Economic boycott will hit well-known Italian firms

"Illegal acts have been carried out against Italy and our interests. Commercial boycotts are prohibited by international conventions," Mr D'Alema said.

"We consider the reaction unleashed by Turkey to be serious and negative," he added.

The Turkish ban could be a serious blow to Italian firm Finmeccanica, which is bidding to supply 145 attack helicopters in a planned deal worth $3.5bn.

Turkey has said all economic relations with Italy are under review.

An economic boycott against some 130 Italian companies with Turkish interests is already underway.

Turkey has also decided to pull the plug on two Italian state-run cable television channels.

Football game postponed

Meanwhile, European football's governing body, Uefa, has postponed Wednesday's European Champions' League match between Galatasaray of Turkey and Juventus of Italy, because of increasing tension.

Juventus officials and players said they were reluctant to travel to Istanbul for the match because of security worries.

Kurds want homeland

The Kurds, who are not officially recognised as an ethnic minority, are pressing for a homeland in south-eastern Turkey. The PKK is regarded as a terrorist organisation, and Mr Ocalan is at the top of the Turkish authorities' most wanted list. He is accused of being responsible for the deaths of 30,000 people.