Both sides in Somalia are playing down the significance of a deadline given by Islamists for a "massive attack".
Witnesses say forces of the interim government have been patrolling the outskirts of the city of Baidoa, their stronghold, alongside Ethiopian forces.
But the Islamic Courts Union, which controls much of the south, backtracked on an ultimatum for Ethiopians troops to leave Somalia by the end of Monday.
The comments contrast sharply with threats of a holy war made last week.
Islamic Courts Union spokesman Abdi-Rahiin Ali Mudey said the Islamists would not attack the Ethiopians or Baidoa.
The government has also said talks could resume if the Islamists stopped making threats.
Last week, President Abdullahi Yusuf Ahmed ruled out any further talks.
Mr Mudey said the Islamists were using the deadline to give the Ethiopians a chance to start negotiations with them, but that Islamist forces would defend themselves if attacked.
"Ethiopia has recently asked us to start talks with them so the deadline was basically meant to tell the Ethiopians to withdraw from Somalia, then talks they offered would be possible," he said.
Information Minister Ali Ahmed Jama said the interim government had been counting the days, waiting for "the last minute of the deadline".
"We will not be the first one to attack, but will not stand by and watch if we are attacked," he said.
Islamic leaders deny accusations of al-Qaeda links. On Sunday, the Union of Islamic Courts said nearly 200 government troops had defected to their side. The government denied the allegations.
Minor clashes have broken out between the two rivals, but neither side has launched a large offensive.
On Saturday Islamist leader Sheikh Sharif Sheikh Ahmed said the movement was prepared for "dialogue" with Ethiopia.
In Yemen, he announced a deal with the speaker of the Somali parliament to resume talks after they collapsed last month.
War stalks Somalia's 'City of Death'
ANTHONY MITCHELL - Associated Press
BAIDOA, Somalia - A headless statue of a soldier stands guard at the entrance of Somalia's "City of Death" - a fitting monument in a place once more stalked by war. An Islamic movement, accused of having al-Qaida terrorists in its ranks, and a new U.N.-backed government struggling to end 15 years of anarchy are vying for control of this nation and girding for battle.
"We are used to war in Somalia, it holds no fear for us," Sadia Ali Mohamed, a 28-year-old mother of two, told The Associated Press as she strolled through Baidoa's bustling market, buying beans for her children.
"But now after all this time we want peace."
Baidoa, which earned its ominous nickname in 1992 when famine and war left thousands dying in the streets, is the U.N.-backed government's temporary capital.
Somalia has not had an effective government since warlords overthrew longtime dictator Mohamed Siad Barre in 1991, plunging the country into chaos.
The government now holed up in Baidoa was formed in 2004 with the help of the United Nations, but it has struggled to assert its authority. The Islamic network that has emerged to fill the vacuum in much of southern Somalia, including the capital, Mogadishu, has among it radicals who have been linked to anti-Western terrorists and have vowed to bring Quranic rule to Somalia.
Baidoa is a squalid place, lacking clean water and electricity and where children play alongside rubbish rotting in the street. It hardly seems worth dying for.
Some 40 miles to the north, east and south of the city several thousand armed militia loyal to the Islamic movement have set up camp and threatened to attack. Since June the group has expanded control across much of southern Somalia.
Ethiopia, a Christian nation fearing a hardline Islamic neighbor, has deployed troops in support of the government. Ethiopia, home to a community of ethnic Somalis, also is worried by declarations from some in the Islamic movement about their desire to unite all Somalis into a "Greater Somalia."
Military vehicles with Ethiopian plates rumble through the potholed streets and Ethiopian soldiers haggle in Baidoa's markets for a bargain to take home.
Both the transitional government and Ethiopia insist the troops, in camouflaged uniforms but without insignia, are military advisers, not a fighting force.
Somali soldiers man checkpoints on all roads in and out of Baidoa, a city of 70,000, after two recent suicide car bomb attacks, one of which nearly killed the president. Government forces regularly test weapons, purple tracer fire from their guns visible in the night sky.
"The government is the beginnings of legitimacy," Somalia's President Abdullahi Yusuf told The Associated Press on Friday. "It is a return to law and order ... the alternative is a return to chaos."
The presence of the Ethiopian troops and Somali soldiers has clearly reassured the local population. Movie theaters continue to show soccer games and men gather in cafes. Traditional mystical poets perform in the streets.
"We feel safe and do not think the Islamic forces will be able to attack Baidoa," said Hassan Ali Abdi, a merchant. "We are ready and prepared now."
Both the United Nations, using its financial support for the transitional government, and the European Union, are increasing pressure to get both sides to pull back from war. EU Development Commissioner Louis Michel is expected to travel Wednesday for talks in Baidoa, and Mogadishu, where the Islamic group is based.
But long term prospects for peace look dim. And conflict could engulf the already volatile Horn of Africa. A recent U.N. report said 10 nations have been sending weapons to the warring sides in Somalia. Eritrea, Ethiopia's traditional rival, is supporting the Islamic movement.
Premier Accuses Igad Member States of Hindering Peace
Somali Prime minister was questioned today about his cabinet ministers' effectiveness and developments in the past three months when the cabinet was reshuffled. Prime Minister Ali Mohammed Gedi was present at the session that the transitional parliament held in Baidoa on Monday.
The parliament session in which premier Gedi delivered a speech was participated by 150 parliamentarians and members of Puntland delegation that attained Baidoa Sunday. Gedi who was being put to many questions by MPs explained what his cabinet has achieved so far in the past three months, indicating his cabinet forestalled terrorist attacks destined to kill government officials.
Asked how Islamic Courts happened to clutch Bur Hakaba and Dinsor, districts that were under the government control before they fell to Islamists, Gedi pointed out that although Islamists claimed residents in those districts invited them, it occurred because the government was too careless to react. "But now the government is fully geared up to attack back every one that tries to invade the government positions", he said.
The prime minister's speech comes as hours are left for rival Islamists that gave the Ethiopian government seven days, (which will last Tuesday), to pull its troops based in Baidoa to safeguard the Somali government out of the country, or that it would encounter major attacks.
Yemeni government that is trying to broker peace deal between the government and Islamic Courts has enabled the powerful parliament speaker Sharif Hassan Sheik Aden and Islamic Courts chairperson Sheik Sharif Sheik Ahmed to meet in Sana and concur on peace talks. Source in Sana say Yemeni president Ali Abdullah Salah has also contacted Ethiopian premier Males Zenawi for an attempt to create peace accord between Somalia's Islamists and the Ethiopian government.
Gedi has condemned Sudan, Eritrea and Djibouti, member states of the regional body (IGAD) for impeding IGAD's mobilization of troop deployment in Somalia to find stability and peace in the country.
"Sudanese president Omar Hassan al-Bashir, who is demanding foreign troops in his country, is hampering the peacekeepers from coming to Somalia. Djibouti that has foreign forces in its country says no foreign forces to Somalia. These are the countries that are undermining IGAD's efforts to bring peace to Somalia", he said.
He also accused some media outlets of backing up the Islamic Courts based in central and southern provinces in the country.
Gedi warned that if war happened in Somalia, it would not only influence the region, but it would also be global. "The African Union summit in Abuja, heads of states commonly agreed that Islamic Courts in Somalia are diseases which can spread rapidly in the African continent, so they decided to avert them before spreading", he added.
He said the government has the right to bring Ethiopian troops in the country, laying the blame on Islamic Courts for inviting rival Eritrean troops in Somalia.
Experts fear Somalia could become a proxy war for arch foes Ethiopia and Eritrea that fought border battles from 1998 to 2000.
The transitional government was formed in Kenya in 2004 after protracted negotiations and with the participation of the country's warlords.