Russian troops have sealed borders
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The Russian military says it has killed 12 Chechen rebels who entered the republic of Dagestan and took hostages.
The rebels were killed in helicopter strikes, according to Alexei Maslov, the army's chief of staff for the area.
The rebels attacked the remote mountain villages of Shauri and Galatli overnight on Monday, taking four hostages with them, officials said.
A Russian official told the BBC the hostages were shut in a room and told to stay there while the gunmen escaped.
Soldiers and police involved in the search are reportedly being assisted by hunters and local volunteers in the mountainous republic which borders on Chechnya.
Officials say the rebels have split into at least three groups.
One of the groups took 11 more hostages in another village, but released them all before daylight on
Tuesday.
Borders have been sealed in the area - which is sandwiched between Chechnya and the former Soviet republic of Georgia - and police are carrying out car searches and ID checks.
"The bandits don't stand a chance of breaking through," Mr Maslov said.
The BBC's Sarah Rainsford in Moscow says there is still no clear information on the rebels' route or their aim - whether this was a planned incursion or if the fighters were heading to Georgia for the winter when they were spotted.
The Georgians have strongly denied the rebels were heading for their border.
Spark for war
Separately, in Chechnya itself, Itar-Tass reported that the Russian authorities have detained five gunmen during the past 24 hours.
Officials said a Chechen rebel, Rustam Akhmadov, was detained after being sighted at the central market of Grozny.
Khasambek Askhabov, who is also on Russia's wanted list, was detained in Argun.
The released hostages talk about their ordeal
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Russia's current war in Chechnya began after fighters seized two villages in Dagestan in August 1999.
They held the villages for several weeks, saying they were supporting a declaration of an independent Islamic state in parts of Dagestan and Chechnya.
That incursion - as well as a series of bombings of apartment buildings in Russia that killed about 300 people - Mr Putin, then the prime minister, to send troops into Chechnya.
Four years later, Moscow says it has pacified the rebellious republic, but fighting continues and Chechens may be behind Russia's now regular suicide bombings.
Dagestan's Information Minister, Magomedsalikh Gusayev, was killed in August when his car was bombed.
No-one claimed responsibility for the bombing, but suspicion fell on Chechen militants, as Gusayev had played a key role in the defence of Dagestan in 1999.