Heavy gunfire near Bethlehem church

About 200 people are holed up inside the church

Heavy shooting has broken out near the Church of the Nativity in Bethlehem, as the Israeli siege there enters its third week.

The BBC's Caroline Hawley, who is at the scene, says she saw bullets, flares and what looked like smoke bombs fired near the building.

This is the fiercest exchange of fire near the building since the standoff began, she says. The exchanges have now subsided.

Two men were taken to hospital on Monday by army ambulance

Those inside the church said that Israeli troops had tried but failed to storm it.

The Israeli army confirmed the military operation, but said its troops had neither fired at the church nor tried to make an entry.

About 200 people, including armed Palestinians, civilians and church staff have been barricaded inside the church for two weeks.

Christians revere the church as the traditional birthplace of Jesus and it is one of their holiest sites.

Evacuations

Israel has been keeping up the psychological pressure on those holed up inside the church, bombarding it with ear-splitting, shrieking noises which aim to disorientate those inside.

The Israelis have also been flying flares and sending fireworks over the church, which has responded by ringing its bells.

Hospital and military sources quoted by Reuters news agency said two men were evacuated from the church on Monday.

One man wounded in the stomach and another suffering from epilepsy were said to have left the church.

A military source confirmed the army had evacuated two men on health grounds.

Vatican outraged

The Palestinians on Sunday rejected as unacceptable an Israeli offer for those inside the church either to hand themselves over for trial in Israel or go into permanent exile abroad.

The Israeli army says there are at least 30 militants from Hamas, Islamic Jihad and Yasser Arafat's Fatah movement inside the church.

The stand-off has provoked outrage from the Vatican, which has accused Israel of reneging on its obligation to protect religious sites.

One monk was injured when he was fired on by Israeli soldiers.