Islamic Party Cancels Rally, Averts Clash : Algeria: As riot police encircle mosques, religious leaders send worshipers home quietly after Friday prayers.

Islamic fundamentalists called off a massive march planned here Friday, heading off a violent confrontation with government forces who stationed platoons of riot police, bulldozers and rooftop sharpshooters around the city’s mosques.

Unease hung over the capital with the onset of weekly prayers Friday afternoon, after which the Islamic Salvation Front had pledged to send thousands into the streets to confront government forces who imposed a state of emergency five days earlier.

“If they go into the streets, it will be a massacre,” an Arab military official had predicted in the hours before the planned march.

U.S. officials, fearing violence in the eastern coastal city of Oran, evacuated the American Consulate there Thursday, a precaution inspired by bomb attacks against the U.S. Embassy compound in Algiers and the French Consulate in Oran late last month.

But as armored personnel carriers circled May 1st Square, where the fundamentalists’ march was to have begun and where lines of bayonet- and rifle-armed riot police surrounded the mosques, Islamic leaders, instead, exhorted worshipers to return quietly to their homes after prayers.

In the teeming community of Belcourt, believed to be a stronghold of Afghanistan-trained fundamentalist guerrillas, truckloads of riot police began surrounding the Saleh Eddin Ayuba mosque shortly after 10 a.m. Residents retreated behind closed doors and locked windows.

“We are the unfortunate. We are the unhappy,” said a woman who peeked out of her door but refused to come outside. “Our sons, our husbands, they could shoot all of us at any moment, cold, like that.”

Unknown gunmen began firing at police officers near Martyrs’ Square at noon, wounding a young boy. In the historic Casbah, an unknown number of police were wounded in another attack Friday afternoon. Five Casbah residents were killed in the pre-dawn hours of Friday in an exchange of gunfire with police, according to the official Algerian Press Service.

Six police officers were killed in the Casbah earlier this week when two police cars were ambushed by gunmen firing automatic weapons, and on Thursday, a group of Muslim extremists attacked a military installation near the port of Algiers, killing one soldier and wounding two others. Two of the attackers were killed in the subsequent exchange of gunfire.

Throughout the afternoon Friday, the sound of gunfire echoed through the narrow alleys of the Casbah. There, crowds of youths occasionally raced, screaming up its passageways, fleeing soldiers from below. Veiled women, fearful, hung in the doorways.

Several witnesses said the incident early Friday when five people were killed climaxed when police fired a rocket-propelled grenade into the historic quarter at 5 a.m. “The people who are dead were burned, charred,” said a young man who witnessed the incident. “I saw people dead, people who are innocent, who did nothing, who went out of their houses, for nothing at all.”

The cycle of violence has escalated in the month since the army forced President Chadli Bendjedid to resign, dissolved the National Assembly and canceled national elections in which the fundamentalists were expected to gain a clear majority in Parliament.

The Islamic Front has declared its intention to establish an Islamic state in Algeria, sending shock waves through the large middle- and upper-class communities that have always viewed Algiers as the Paris of the southern Mediterranean.

Most of these Algerians have applauded the move to declare a state of emergency and outlaw the Islamic Front. But diplomats here say the government cannot go on forever in its standoff with the fundamentalists without moving to deal with the pressing economic woes that have fed the fundamentalist fervor.

“It has become a war of attrition,” one Western envoy said. “The government now thinks the situation is controllable, but it knows it may have to come down very hard. It is not thinking in the long term. . . . This kind of killing can continue for some time, but not forever.”