By Suleiman Al-Khalidi and Khaled Yacoub Oweis
BAB AL-HAWA, Syria/AMMAN July 21 (Reuters) - Syrian government forces pounded rebels in Damascus overnight, battling to reverse opposition gains in the aftermath of the assassination of President Bashar al-Assad's security chiefs.
Army helicopters and tanks aimed rockets, machineguns and mortars at pockets of rebel fighters who have infiltrated the capital this week in an operation they call "Damascus Volcano".
Lightly-armed fighters have been moving through the streets on foot and attacking security installations and roadblocks.
But the heart of the city was quiet by 0400 GMT on Saturday, residents told Reuters.
The Syrian Observatory for Human Rights, an opposition group which monitors the violence in the country, said 240 people had been killed across Syria on Friday, including 43 soldiers.
The Observatory's combined death toll over the past 48 hours stands at 550, making it the bloodiest two days of the 16-month-old uprising against Assad.
On Wednesday 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.
"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 phone from Damascus.
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.
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."
Assad has failed to speak in public since Wednesday's blast. A funeral was held on Friday for three of the officials slain in the attack, but Assad did not attend and was nowhere to be seen.
A Damascus resident said he saw three tanks on the southern ring road late on Friday evening, firing at 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 district of high rise towers, villas and cactus fields, said helicopters were firing machineguns into the neighbourhood and rebels were firing back "uselessly" with automatic rifles.
A man in Barzeh, a neighbourhood to the northeast, said a barrage of mortar rounds began hitting residential buildings before midnight.
Loyalist 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 was gunfire between the two districts, he said.
Accounts could not be independently verified. The Syrian government restricts access by international journalists.
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 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.
Assad's forces shelled the Abu Kamal crossing with Iraq on the Euphrates River highway, one of the most important trade routes in the Middle East, seized by rebels on Thursday.
A Reuters photographer at the scene said Iraqi forces had sealed off their side of the checkpoint with concrete walls. Late on Friday 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.
Regional and world powers are now bracing for what could be the decisive phase of the conflict, hoping to wrench Assad out of power without unleashing a sectarian war that could spill across borders.
Israel said it would consider military action if needed to ensure Syrian missiles or chemical weapons did not reach Assad's allies in Lebanon, the Shi'ite Islamist movement Hezbollah.
"I have instructed the military to increase its intelligence preparations and prepare what is needed so that ... (if necessary) ... we will be able to consider carrying out an operation," Defence Minister Ehud Barak said.
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.
"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. (Additional reporting by Oliver Holmes, Samia Nakhoul and Dominic Evans in Beirut and Saad Shalash near Qaim, Iraq; Writing by Andrew Roche)