The clash happened in the neighbourhood of Thapathali, about three miles from the royal palace, the symbolic heart of the city and the goal of tens of thousands of protesters filling the city streets.

The shooting came as Nepal's opposition alliance rejected King Gyanendra's offer to name a prime minister for a new government, and the protesters defied curfew orders.

?We will not accept. We will continue the protests, " Madhav Kumar Nepal, general secretary of the Communist Party of Nepal, one of the seven parties that is part of the alliance, told a cheering crowd in Kathmandu.

Standing on the roof of the home of Girija Prasad Koirala, president of the Nepali Congress party, the leaders briefly addressed the crowd packed into a narrow alley.

We are here to support you.

Don't get weak in the knees.

Don't ditch the people, " shouted the crowd.

Meanwhile, soldiers on armoured vehicles blocked thousands of protesters who were marching in the east of the city.

An army helicopter hovered overhead.

After more than two weeks of bloody protests and a general strike that has caused a shortage of essential supplies in the capital, the king on Friday announced he was returning executive power to the people, and called on the seven main opposition political parties quickly to name a prime minister.

European ambassadors urged opposition leaders to consider the offer. ?The parties don't think he (the king) has done enough, but we think it is a basis on which we can build and move forward, " British ambassador Keith George Bloomfield said after meeting with the leaders.

The government yesterday released two senior opposition leaders, a day after they were arrested. Jhala Nath Khanal and Bamdev Gautam, both of the Communist Party of Nepal, have been important conduits in negotiations with the Maoist insurgents who control much of the countryside. The Maoist rebels are not affiliated with the Communist Party of Nepal.

The government imposed an eight-hour curfew in the capital Kathmandu and the suburb of Lalitpur, but hundreds of people were pouring into the outskirts of Kathmandu yesterday just outside the curfew zone.

About 50,000 protesters in the resort town of Pokhara, about 125 miles west of Kathmandu, gathered to demand that opposition parties not accept the king's offer.

Gyanendra is deeply unpopular, isolated in a collection of palaces, and has lost control of much of the countryside to Maoists seeking to create a communist Nepal in an insurgency that has killed nearly 13,000 people in the past decade.

Opposition leaders initially saw little in the speech to resolve the crisis, which began when the king seized power in February 2005 with the stated goal of crushing the Maoist insurgency that had made holding elections impossible.

This is incomplete, " said Minendra Risal of the Nepali Congress Democratic party after the announcement. The king, he noted, fell short of a key opposition demand . . . the return of parliament and the election of a special assembly to write a constitution. Most opposition leaders want a constitution that would make the king a ceremonial figure or eliminate the monarchy entirely.

But they saw other problems too: Under the new plan, the king would retain an undefined political role in a constitutional monarchy and apparently keep control of the military.

This looks like another attempt by the king to fool the people, " said Subash Nemwang of the Communist Party of Nepal. ?It is a desperate attempt to save the regime."

Nepal's crisis has escalated since a general strike called by the parties and the Maoists began two weeks ago. Protesters have filled the streets daily, leaving the country paralysed, shops emptied of goods and the situation dangerously volatile. Security forces firing at protesters have killed at least 14 and wounded many more.

A wave of protesters came within a few hundred yards of the palace before being turned back by security forces firing tear gas.

Down with Gyanendra! Gyanendra out, out!" many chanted as they moved toward the palace.

Security forces opened fire on the crowd without warning, wounding many of us, " said Ganesh Shrestha, who was injured when a bullet grazed his arm.

At the nearby Norvic Hospital, the halls were jammed with injured people. Doctors there confirmed at least four people had been injured by rubber bullets or live ammunition, and 43 were hurt in baton charges or fell while running away.

Authorities later cut mobile phone services in Kathmandu, a telecommunications official said.

Protest organisers have repeatedly used mobile phones and text messages to rally demonstrators during over two weeks of protests.