ADDIS ABABA, Ethiopia (CNN) -- Air attacks in the territorial dispute between Ethiopia and Eritrea appeared to have died down Sunday, but ground clashes continued, with Ethiopia saying it had retaken a frontier town.

A foreign ministry official said Ethiopian troops had defeated a brigade-strength Eritrean force, which had occupied the town of Zalambessa. The town lies outside the disputed territory claimed by both sides in their hostile border war but was occupied by Eritrea on Tuesday.

CNN's Diane Hodges reports on the conflict 2 min. 18 sec. VXtreme video

The official said skirmishes were continuing, but there was no independent confirmation of that report.

Eritrea's capital Asmara was reported to be calm but tense on Sunday after the deadline for an Ethiopian moratorium on bombing raids passed with no sign of further attacks.

The air war prompted hundreds of nationals from Germany, Russia, Italy and Britain to be evacuated.

International workers flee the Horn of Africa during a temporary cease-fire between Eritrea and Ethiopia

Ethiopian MiG fighters hit Asmara airport three times since the war between the former comrades over a barren border area erupted Friday.

The same day, an Eritrean warplane strafed the streets in the northern Ethiopian town of Mekele. The 47 civilian victims, at least 10 of them children, were buried Saturday.

Residents of Addis Ababa had called for revenge on Saturday, but on Sunday orthodox Christians in the capital -- which has a centuries-old history of Christianity -- prayed for peace.

However, the leaders of both countries remained bellicose.

President Isaya Afewerki was hailed by crowds during an informal stroll in Asmara on Saturday.

Afewerki accused Ethiopia of being the aggressor and insisted that fighting would continue for as long as Ethiopia hit Eritrean targets.

In Addis Ababa, some 800 km (500 miles) away, Ethiopian Prime Minister Meles Zenawi said the global community must "talk sense into the leadership in Asmara" if the conflict was to be peacefully resolved.

The heads of Ethiopia's nine federal states said they had started mobilizing combatants to wage the war.

Ethiopia's population of 60 million dwarfs Eritrea's by 15 to one but both countries have huge armies by African standards.

On Saturday, the assistant U.S. Secretary of State for Africa stepped up a campaign of shuttle diplomacy in an effort to broker dialogue between Ethiopia and Eritrea.

"The peace recommendations by the United States and Rwanda constitute a reasonable basis for a peaceful resolution for the conflict," Susan Rice told journalists in Ouagadougou, the Burkina Faso capital where the Organization of African Unity begins a summit on Monday.

The peace proposal asks Eritrea to return to territory where it was before May 6 and withdraw from the northwestern region of Badame, where hostilities were first reported. In other words, the proposal asks Eritrea to withdraw from what Ethiopia considers its territory.

Eritrea, however, claims it is rightfully in territory defined by boundaries drawn by Italy when it occupied Eritrea.

The Italian President Oscar Luigi Scalfaro appealed for peace in a letter to the presidents of both nations.

"What is happening ... is absurd in all respects," he said.

"The two sides must ... look at the underlying reasons for this situation, which could compromise for decades any prospect of battling the poverty of both countries," Scalfaro told the dueling neighbors.

The two countries enjoyed friendly relations until the long-running border dispute turned violent on May 6.

The row centers on a rocky 400 square km (155 square mile) triangle of land which both countries claim.

Relations were not helped by an Eritrean decision last year to introduce its own currency, the nakfa, to replace the Ethiopian birr -- a decision analysts said played havoc with Ethiopia's money supply and prompted Addis Ababa to insist that all bilateral trade be conducted in a third, hard currency.