Somalia's Islamic courts say Ethiopian troops are massing at the border and have entered the country, clashing with residents overnight.
Ethiopian officials say their troops are deployed along the border, but have not crossed into Somalia.
Ethiopia has been accused of supporting the Somali warlords who were routed from Mogadishu and other towns by Islamic militias in recent fighting that left at least three hundred fifty people dead.
The Islamic Courts Union, or ICU, now controls the capital and other key towns in Somalia's south. Ethiopia accuses the courts of advancing north toward their border.
In Washington, the assistant secretary of state for African affairs (Jendayi Frazer) said the U.S. is reserving judgment on the ICU.
The ICU's leader (Sheikh Shariff Sheikh Ahmed) says he has tried to open dialogue with the U.S. by writing two letters to the U.S. government this week.
Yemen has offered to mediate talks between Somalia's weakened central government and the ICU.
Some information for this report provided by AFP and Reuters.