Chechens Regroup After Palace Rout : Caucasus: Russians urge rebels to lay down arms, but the republic’s president vows fight will continue.

The battle of Grozny rumbled on at reduced intensity Friday as Chechnya’s rebels, having lost their presidential palace to Russian forces, dug into neighborhoods on the south side of this capital city.

Sporadic artillery and small-arms fire echoed from both banks of the Sunzha River, which meanders across Grozny and now divides the enemy camps. Russian helicopters equipped with loudspeakers flew overhead, urging the rebels to give up.

“Resistance is senseless,” they said. “Lay down your arms or we will destroy you.”

But instead of a rout, the Russians’ capture of Chechen President Dzhokar M. Dudayev’s ruined 10-story palace Thursday appeared to give way to uneasy regrouping for a new, undefined phase of guerrilla warfare.

Russian forces, which invaded this tiny Muslim republic Dec. 11 to reimpose rule from the Kremlin, moved fresh troops and armor toward Grozny from the north and west. Russian warplanes roared overhead, despite President Boris N. Yeltsin’s assertion that the military campaign was “practically over.”

A tired but relaxed Dudayev emerged Friday from his new headquarters wearing combat fatigues and vowing that his outnumbered forces will battle on, but he revealed nothing of their strategy.

“The situation is that the Chechen people are getting used to bombing, rockets and Grad missile attacks--they frighten nobody, not even children--and are preparing to send the grief back where it came from,” he told reporters summoned to a location they promised not to reveal. It was his first public appearance in a week.

Six inches of snow fell on Grozny and the hundreds of people scrambling to flee. They said the bombing and rocketing that forced Chechen fighters to leave the palace was some of the most intense of the 6-week-old war.

“We thought it was going to end soon, but now it is getting worse and worse,” said Zara Minayeva, a 37-year-old businesswoman, as she walked away from her southern Grozny home in tears, with her two small children and a sled full of belongings in tow.

“Somebody is shooting from somewhere, and the shells and fragments are flying all over. There are dead bodies every day. We have no electricity. We are cut off. We can’t see the Russians or the Chechens. We see only death. . . . I wish Yeltsin could go through this with his children.”

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At an outdoor market set up in Minayeva’s devastated neighborhood, people debated Yeltsin’s claim that Russian Interior Ministry troops will soon disarm the Chechens and “restore order” in the republic that proclaimed independence three years ago.

“Why is it only now that Yeltsin has remembered that Chechnya is part of Russian territory?” asked Taisiya Fatiyev, a 56-year-old Russian living here. “What’s he been doing for the last three years?”

“How can a war be a means of ‘introducing order’?” a Chechen man shouted back.

Interior Ministry troops who had just arrived from Russia and were manning a roadblock 30 miles west of Grozny said they expected a long campaign ahead.

“There’s a village nearby,” said a towering 35-year-old lieutenant named Sasha. “By day, when they pass our checkpoint, they’re civilians. But at night, they take out their weapons and become fighters.”

The troops were reported making house-to-house searches for weapons in several villages south of Grozny but had not yet choked off the capital and its defenders from supplies of food and weapons driven in daily from the south.

For now, the fighting is still focused in Grozny, a city of 400,000 before the Russian siege.

Chechen fighters said they had decided Wednesday to withdraw their military headquarters from the palace and pull back from all other positions north of the Sunzha. They said the river now offers a more definitive battle line, allowing them to aim their fire northward without fear of killing their own.

In an updated account, Chechen officials said 600 fighters holding about 80 Russian prisoners left the palace early Thursday after bombs penetrated their basement bunker. They said 35 other prisoners and about 15 Chechen fighters died in the bombing.

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It is still unclear whether the Chechens intend to hold their ground in southern Grozny or to try to draw the Russians into a guerrilla war in the Caucasus Mountains along Chechnya’s southern border with Georgia.

Zhalavdi Duliyev, a 35-year-old Chechen special forces commander, gave a cryptic answer to this question as he left a hospital south of the city Friday after treatment of shrapnel wounds.

“Remember how Kutuzov left Moscow?” he asked, referring to the scorched city occupied by Napoleon and his forces in 1812, before their disastrous retreat. “Well, that is what Grozny is like today. As the French did in Moscow, the Russians turned Grozny into rubble. Now let them feast there.”