By Alexander Last

ZALAMBESSA, Ethiopia/Eritrea border, Nov 13 (Reuters) - An uneasy calm settled on the small Eritrean-held border town of Zalambessa this week after residents reported shelling by Ethiopian forces two weeks ago. The town, some 100 km (63 miles) south of the Eritrean capital Asmara, was the scene of heavy fighting at the height of the border conflict between the two Horn of Africa nations in June, and has since been the scene of sporadic artillery engagements. The heaviest exchange in recent months took place on October 24, residents said.

"It was very strange," said Eritrean soldier Daniel Tesfai, "The shelling was random, they were falling everywhere." Local media reports said that two civilians were killed and one injured on the Eritrean side, but this could not be confirmed by a Reuters correspondent visiting the town.

Eritrean troops say they responded to Ethiopian shelling with their own heavy artillery fire, hitting Ethiopian positions in the hills around the northern Ethiopian town of Adigrat. Journalists in Adigrat said the town itself was hit by Eritrean shells last week, killing at least two civilians. Eritrean army sources said that a military store in Adigrat was the target. Shelling has also been reported in recent weeks on the northern Badme front, the territory at the heart of the dispute which erupted on May 6. Hundreds were killed on three fronts along the 1,000 km (620 mile) frontier before fighting died down with the onset of the rainy season in mid-June.

Most of Zalambessa's residents fled at the start of the fighting to neighbouring towns or to the makeshift camps that have sprung up in the nearby hills. The reasoning was simple -- both the primary schools in Zalambessa and the school in the nearby town of Serha have taken hits from artillery. Some hardy shopkeepers and bar owners hung on to serve the influx of Eritrean soldiers who took over abandoned houses. But even they have now left.

"It's just too risky," said one soldier. The few remaining residents of Zalambessa have started constructing makeshift bomb shelters using eucalyptus trees. "They try to copy the military shelters which they see," said Brahane Tewolde, who said he was a journalist but was dressed in combat fatigues.

Zalambessa, which was under Ethiopian administration until it fell to the Eritreans on June 3, once epitomised the friendship the two countries enjoyed after Eritrea gained independence after a referendum in 1993. The half Ethiopian and half Eritrean population lived peacefully together until a long-running border squabble between Asmara and Addis Ababa erupted into violence in early May. Mediation in the war continued this week with another round of shuttle diplomacy by U.S. envoy Anthony Lake. A peace summit sponsored by the Organisation of African Unity at the weekend failed to make a breakthrough.

"Everyone is praying for peace but we just don't know," said Zalambessa resident Lemlem Tadesse. ENDS