The Turkish army stepped up its bombardment of the Iraqi side of the border after the rebels ambushed a military unit inside Turkey, hitting 11 different areas close to towns and villages, Kurdish officials said. In a separate incident in south-eastern Turkey, one person died and 17 were injured when their minibus was hit by a roadside bomb allegedly placed by the PKK.

With tension rising, Iraq's president, Jalal Talabani, who heads one of the country's two main Kurdish parties, expressed condolences to the families of the dead Turkish soldiers and demanded that the PKK disarm and commit itself to peaceful politics, or else get out of Iraq. "We have appealed to the PKK to desist fighting and transform themselves from a military organisation into a civilian and political one. If they insist on the continuation of fighting, they should leave Kurdistan of Iraq and not create problems here," an angry Mr Talabani said at a press conference in Salaheddin with Massoud Barzani, president of the Iraqi Kurdistan region.

The two Kurdish leaders made repeated calls for a peaceful solution to the crisis, urging Turkey not to take the military route. "Wisdom must be the leader of this conflict," Mr Talabani said.

In Ankara, senior government officials were locked in a late-night council of war with army generals and police commanders to plot what President Abdullah Gul said would be "a determined and vigorous response to the latest terrorist outrage".

Mr Gul would not be drawn on whether that meant the predicted major incursion into northern Iraq, from where Turkey claims PKK rebels launch attacks across the border. But he said: "We have made it very clear that if the terrorist shelters there are not destroyed, it is our legitimate right to destroy those shelters ourselves."

After the crisis talks, the prime minister, Tayyip Erdogan, said the US secretary of state, Condoleezza Rice, had asked for a few days' pause before any response. "We expect the United States to take swift steps [against the PKK] befitting of our strategic partnership," Mr Erdogan told a late-night news conference.

The US, Ankara's Nato ally, is anxious to avert any Turkish military strikes against the PKK in northern Iraq, fearing that this might destabilise the region.

As well as the eradication of the PKK camps, Ankara demands that the rebel leaders are arrested and handed to it.

Turks protested in several cities to denounce the PKK's attack, adding to nationalist demands that the government take military action. Mr Erdogan, said: "Our anger, our hatred is great." But he insisted his government would take "an approach that is calm and based on common sense".

The Turkish soldiers died during a large operation against PKK rebels in the Oramar area of Hakkari province, where the borders of Iran, Iraq and Turkey converge. PKK guerillas reportedly blew up a bridge as a Turkish military convoy was crossing it. In the fighting that ensued, the Turkish military said it killed 32 rebels.

The fighting was described by a Turkish military source as intense, involving the use of helicopter gunships and the shelling of 63 PKK targets. There were no indications that troops had crossed into Iraq.

A spokesman for the PKK told the Guardian that guerillas had killed 17 Turkish soldiers as they ambushed a military convoy heading towards the Iraqi border. The rebel group had also taken eight "prisoners of war". He said the PKK suffered no losses, but clashes were continuing. He described the incident as "self-defence" and said the group was still committed to a ceasefire and a negotiated solution.

PKK sources said fighters on the Iraqi side of the border had dismantled their camps and were adopting "defensive" positions in the mountains in anticipation of a concerted Turkish attack.

The escalation of violence came just four days after the Turkish parliament gave the green light for the country's forces to enter Iraq to hunt down the rebels, who have bases high up in the remote and rugged mountain areas.

Turkey accuses Iraq's Kurdish leaders of aiding the PKK, a charge they strongly deny, and has grown frustrated with the perceived reluctance of the US and Baghdad to crack down on the rebels.