Islamist radicals from a Palestinian group called Jund Ansar Allah defied the Hamas rulers of Gaza on Friday by declaring an "Islamic emirate" in the territory and staging a defiant display of arms, Reuters reported.

Though the "Warriors of God" rallied only a few hundred men for their event at a Gaza mosque, it was the latest challenge to Hamas's nationalist brand of Palestinian Islam by groups espousing a pan-Arab militancy aligned with al Qaeda.

It was followed by gunfire in the southern town of Rafah near the Egyptian border, where the leader of the movement is based. Residents said Hamas forces were engaged in armed clashes with his supporters.

Speaking before weekly prayers, Abdel-Latif Moussa -- known to followers by the al Qaeda-style nom de guerre Abu al-Nour al-Maqdessi -- announced the start of theocratic rule in the Palestinian territories, starting at Rafah.

"We declare the birth of the Islamic Emirate," declared Maqdessi, a heavily-bearded, middle-aged cleric in a red robe who was guarded by four black-clad, masked men with assault rifles. One wore what appeared to be an explosive suicide belt.

An audience of several hundred men filled the mosque with cheers and shouts. Al Qaeda uses the historical term "emirate" to mean clerical rule across the Islamic world.

Ismail Haniyeh, who heads Gaza's Hamas government, denied in his Friday sermon that there were any non-Palestinian gunmen in the territory, as alleged by Israel which charges that veterans of wars in Iraq and Afghanistan have taken up residence.

"Such groups do not exist on the soil of the Gaza Strip ... there are no fighters in Gaza except Gazan fighters," he said.

Such "Zionist propaganda" from Israel was simply an attempt to turn the world against Hamas, he said.

Hamas official Sami Abu Zuhri called Maqdessi's speech "wrong thinking" and in a clear reference to al Qaeda added that his group "has no affiliation with foreign groups". Hamas's Interior Ministry was blunter, calling Maqdessi "mad".

His group announced its existence in Gaza two months ago, after three of its members were killed in a border raid on an Israeli base in which gunmen rode on horseback.

BLOODSHED WARNING

Outside the mosque on Friday, nearly 100 masked fighters of the group in Pakistani-style dress, wearing their hair long in a style believed to imitate the prophet Mohammad, carried automatic weapons and rocket-propelled grenade launchers.

Men of the Hamas armed wing and security forces took positions nearby. The group accuses Hamas of oppressing them, including making arrests and confiscating weapons.

Hamas is an Islamist group described by its leaders as a moderate movement and by independent analysts as giving priority to Palestinian nationalist goals over international religious aims typical of al Qaeda's network. Observers detect strains within Hamas ranks between pragamatic and more radical factions.

Hamas refuses to renounce violence against Israel but has condemned al Qaeda bombings in other countries. It has made little public attempt to impose fundamentalist law or strict dress codes, but it is encountering more frequent challenges from groups who want more traditionalist Islam in Gaza.

Human rights groups last month criticised an order by a Hamas-appointed judge that women lawyers cover their hair, and a campaign by its religious affairs ministry to encourage the public to follow Islamic instructions.

Maqdessi warned Hamas against implementing a decision to take over the mosque where he leads prayers for his followers: "If they approach the mosque they should know their days will be cut short," the grey-whiskered cleric said.

Maqdessi said his group would not initiate attacks against Hamas but "whoever sheds our blood, his blood will be shed".

He urged "everyone who has a weapon" to join the group and carry out decisions to be issued by the armed wing in coming weekly sermons. The group believes democracy is prohibited by Islam because it follows earthly law instead of God's word.

"Who are you afraid of? America? Britain? France? The European Union? You should fear only God," Maqdessi said in a warning to Hamas leaders seeking dialogue with the West.

Israel unilaterally ended its occupation of the Gaza Strip in 2005 and withdrew its forces. Islamist radicals began to surface in Gaza following the takeover of the Israeli-blockaded enclave by Hamas in 2007, when it routed the forces of the secular Fatah movement of Palestinian President Mahmoud Abbas.