MUMBAI (Reuters) - Heavy gunfire erupted on Friday after Indian commandos were dropped by helicopter onto the roof of a Jewish center in Mumbai, where suspected Islamist militants are holding at least 10 Israelis, a Reuters witness said.
Television reports said it was the start of an assault by the para-military National Security Guard to flush out the militants.
The Jewish center was one of three pockets in the country's financial capital where Indian forces were battling die-hard militants, more than 24 hours after the band of heavily armed fighters killed at least 121 people in coordinated attacks.
The Reuters witness said troops fired into the Jewish center, apparently to provide cover, as commandos rappelled down ropes from helicopters that made at least three sorties. Television showed the commandos taking up positions on the roof.
The building is in a crowded part of the city, making a frontal assault difficult.
Police said militants were still holed up as well at the Taj Mahal hotel and the nearby Oberoi-Trident hotel along with an unknown number of hostages.
A Reuters witness said commandos also entered the Oberoi-Trident on Friday morning, although there were no immediate signs of fighting.
Mumbai, a city of 18 million, is the nerve-center of India's growing economic might and home to the "Bollywood" film industry.
Hindu-dominated India, which has a sizeable Muslim minority, has been hit by militant attacks for decades. But this strike seemed aimed at crippling its ability to draw foreign investment.
Its markets closed on Thursday because of the attacks but India's market regulator said he had asked stock exchanges to be ready to trade on Friday, with a final decision to be made later.
Prime Minister Manmohan Singh pinned blame for the attacks on militant groups based in India's neighbors, usually an allusion to Pakistan, raising prospects of renewed tension between the nuclear-armed rivals.
He warned of "a cost" if these nations did not take action to stop their territory being used to launch such attacks.
An estimated 25 men armed with assault rifles and grenades -- at least some of whom arrived by sea -- had fanned out across Mumbai on Wednesday night to attack sites popular with tourists and businessmen, including the city's top two luxury hotels.
Police said at least seven of the attackers were killed and nine suspects had been taken into custody. They said 12 policemen were killed, including Hemant Karkare, chief of the police anti-terrorist squad in Mumbai.
At least six foreigners, including one Australian, a Briton, an Italian and a Japanese national, were killed. Scores of others were trapped in the fighting or were being held hostage.
Police said 279 people were wounded.
The Hindu newspaper said at least three of the attackers taken into custody were members of the Lashkar-e-Taiba group, based in Pakistan.
The group made its name fighting Indian rule in disputed Kashmir, and has been closely linked in the past to the Pakistani military's Inter Services Intelligence agency, the ISI.
Lashkar-e-Taiba has denied any role in the attacks.
"It is evident that the group which carried out these attacks, based outside the country, had come with single-minded determination to create havoc in the commercial capital of the country," Prime Minister Singh said on Thursday.
"We will take up strongly with our neighbors that the use of their territory for launching attacks on us will not be tolerated, and that there would be a cost if suitable measures are not taken by them," he said in a televised address.
Pakistan, condemning the assault, promised full cooperation.
The militants appeared to specifically target Britons, Americans and Israelis, witnesses said.
World leaders including U.S. President-elect Barack Obama condemned the incident.
The attacks brought the biggest chaos to the city since serial bombings in 1993, blamed on the city's Muslim crime syndicates, killed 260 people and injured hundreds.
(Reporting by New Delhi and Mumbai bureaux; Writing by Raju Gopalakrishnan; Editing by Jerry Norton)