By Suleiman Al-Khalidi and Khaled Yacoub Oweis
BAB AL-HAWA, Syria/AMMAN July 21 (Reuters) - Syrian army helicopters pounded Damascus with rockets and heavy machine guns overnight, and tanks bombarded the capital from the ring road, to try to reverse relentless gains by rebels since much of President Bashar al-Assad's entourage was assassinated.
The unprecedented rebel momentum of the past few days has fighters boasting that Assad's grip is being pried from the country his family has ruled since his father seized power in a coup 42 years ago. But he remains a fearsome foe.
"The regime has been rudderless for last three days. But the aerial and ground bombardment on Damascus and its suburbs shows that it has not lost the striking force and that it is re-grouping," opposition activist Moaz al-Jahhar said by telephone from Damascus.
At Bab al-Hawa, a busy border post with Turkey seized by advancing fighters, rebels watched on with approval while jubilant villagers looted a duty free shop, part of the vast business empire of one of Assad's cousins.
"This is the people's money; they are taking it back," said rebel fighter Ismail. "Whoever wants to should take it."
The 16-month conflict has been transformed since Wednesday, when a bomb killed four members of the president's narrow circle of kin and lieutenants, including his powerful brother-in-law, defence minister and intelligence chief.
In the days since, rebels have pushed deep into the heart of the capital and seized control of other towns. On Thursday, they captured three border crossings with Iraq and Turkey, the first time they have held sway over Syria's frontiers.
Assad has failed to speak in public since Wedneday's blast, adding to the sense that one of the most strategically important countries in the Middle East is being torn from his grasp. A funeral was held on Friday for officials slain in the attack, but Assad did not attend and was nowhere to be seen.
The next few days will determine whether Assad's government can recover from the bombing, which wiped out much of his command structure in a single blow and destroyed his clan's decades-old aura of merciless invulnerability.
Rebels poured into the capital Damascus at the start of the week and have since been battling government forces in what the fighters call operation "Damascus Volcano".
Lightly-armed rebels have been moving on foot inside residential neighbourhoods and attacking security installations and roadblocks dotted across the capital.
Wajeeh, a private employee who did not want to give his last name, said he saw three tanks on the southern ring road that deployed late on Friday evening and were firing at the Kfar Souseh and Mezze districts in west Damascus.
"The road was cut off and troops were firing mortar rounds from next to the tanks," he said.
A resident of Mezzeh, a middle class district of high rise towers, villas and cactus fields, said army helicopters were striking the neighbourhood with heavy machineguns and rebels were firing back "uselessly" from automatic rifles.
Another resident in Barzeh, a lower middle class neighbourhood in the northeast, said a barrage of mortar rounds began hitting the district before midnight and he counted six rounds hitting residential buildings.
He said snipers stationed in Ush al-Wawrar, an enclave in hills overlooking Barzeh populated mainly by members of Assad's Alawite minority sect, had killed a woman earlier in the day and there were sporadic exchanged of fire between the two districts.
An activist in Saida Zeinab, a poor neighbourhood in the southeast of Damascus housing thousands of Sunni Muslim refugees from other parts of Syria, said it was being shelled with artillery following a helicopter rocket attack. Explosions were also heard form the suburbs of Harasta, Irbeen, Daraiya and Harran al-Awameed, where rebels fought troops on Friday.
Activists said at least 100 people were killed in Damascus on Friday. Accounts could not be verified. The Syrian government restricts access by international journalists.
Regional and world powers are now bracing for the last phase of the conflict, hoping to wrench Assad out of power without unleashing a sectarian war that could spill across borders in one of the most volatile parts of the world.
Diplomacy has failed to keep pace with events. A day after Moscow and Beijing vetoed a U.N. resolution that would have allowed sanctions, the Security Council approved a 30-day extension of a small, unarmed observer mission, the only outside military presence on the ground.
In at least one apparent success for Assad's forces, state TV said on Friday troops had cleared the central Damascus district of Midan of "mercenaries and terrorists". It showed dead men in t-shirts, some covered in blood, others burned.
Opposition activists and rebel sources confirmed on Friday that they had withdrawn from that district after coming under heavy bombardment, but said they were advancing elsewhere.
"It is a tactical withdrawal. We are still in Damascus," Abu Omar, a rebel commander, said by telephone.
One resident of a Palestinian refugee camp in the south of the city said the area nearby had a stench of corpses.
He said: "Tens of cars are burned, I saw at least eight bodies in the streets and people are trying to cover them with blankets. There is a stench (of bodies)."
Assad's forces tried to recapture the Bab al-Hawa border crossing with Syria and shelled the Abu Kamal crossing with Iraq on the Euphrates River highway, among the most important trade routes in the Middle East.
A Reuters photographer at the scene said Iraqi forces had sealed off their side of the checkpoint with concrete walls. Explosions and gunfire could be heard from the Syrian side, which had been burned and looted.
The surge in violence has trapped millions of Syrians, turned sections of the capital into ghost towns, and sent tens of thousands of refugees fleeing to neighbouring Lebanon. The U.N. refugee agency said it had heard banks had run out of cash.
The rebels, who struggled for months against government assaults on their strongholds across Syria, appear to favour small, high impact attacks in the capital, with residents reporting blasts near the landmark Assad Library.
Rebels torched and looted the Damascus Province Police headquarters on Thursday in the centre of the old town.
A witness said a barracks used by the shabbiha, the pro-Assad militia, was ablaze on Friday after a two-day siege.
"The Saiqa (thunderbolt) barracks is now on fire. About 80 shabbiha and army who have been defending it have withdrawn," Abu Ilizz, a resident of the district adjacent to the Council of Ministers building, said by telephone.
"FORTRESS DAMASCUS" IN TURMOIL
It was the sixth day of clashes in the ancient city, an offensive the rebels are calling "Damascus Volcano and Syrian Earthquake". The Syrian government also says this will be the decisive battle.
"The regime is going through its last days," Abdelbasset Seida, the leader of the main Syrian opposition umbrella group, the Syrian National Council, said in Rome, predicting a dramatic escalation in violence.
Residents in central Damascus said shops were closed, roads were empty and only a handful of people were outside. The normally heavy traffic of the cramped Middle Eastern city was gone; only a few cars were moving along its boulevards.
Power in many parts of the city had been cut as temperatures rose to above 40 degrees Celsius (104 degrees Fahrenheit).
"We have heard reports that many of the banks have just run out of money," Melissa Fleming, chief spokeswoman for the United Nations' refugee agency UNHCR, told a briefing in Geneva.
Up to 30,000 Syrian refugees may have crossed into Lebanon in the past 48 hours to escape the fighting, she said. There were also growing numbers fleeing to Iraq and people pouring into Jordan and Turkey.
Residents reported a lack of government checkpoints in the heart of the city and fewer guards in front of the Interior Ministry, which some of them interpreted as signs that government forces were either stretched thin or melting away.
Another Syrian general fled to Turkey overnight, along with four colonels and 17 lower-ranking officers, a Turkish official said, bringing the number of generals sheltering there to 22.
The Syrian Observatory for Human Rights, which compiles reports from activists, said 310 Syrians, including 98 security personnel, were killed on Thursday, the highest daily death toll so far. The reports could not be confirmed. (Additional reporting by Oliver Holmes, Samia Nakhoul and Dominic Evans in Beirut, Saad Shalash near Qaim, Iraq, John Ruwitch in Shanghai, Khaled Yacoub Oweis in Amman, Steve Gutterman in Moscow, James Mackenzie in Rome and Stephanie Nebehay in Geneva; Writing by Philippa Fletcher and Peter Graff; Editing by Andrew Osborn)