CHECHEN REBEL CONVOY SURROUNDED\Russian hostages used to buy safe passage.

Byline: Associated Press 

Russian troops allowed a convoy of Chechen rebels and 160 hostages to head for Chechnya on Wednesday, then surrounded them as terrified hostages begged the Russians not to shoot. The guerrillas issued an ultimatum: guaranteed safe passage or dead hostages.

The hostage crisis is the latest embarrassment for the Kremlin, which has been unable to suppress the Chechen insurgency in 13 months of fighting.

Local security officials denied a report that the two sides clashed late Wednesday and that the rebels took more hostages at Pervomayskaya, telling the ITAR-Tass news agency that "the situation remains unchanged."

Earlier on Wednesday, the rebels had released up to 3,000 hostages taken in a surprise attack Tuesday on the southern city of Kizlyar. The rebels had holed up in a hospital with the hostages and demanded that Russian troops withdraw from Chechnya.

Russian officials allowed about 250 rebels to leave Kizlyar under heavy military escort, but helicopters fired on the convoy of 11 buses and two trucks as it approached the border, and Russian troops later surrounded it.

At least 40 people were killed in the raid on Kizlyar, which is in the Russian republic of Dagestan, bordering Chechnya. Dozens were reported injured. Three babies were born in the hospital during the hostage ordeal.

When the convoy pulled into Pervomayskaya, a village six miles from the Chechen border, rebels wearing green Islamic headbands emerged from the 11 buses and two trucks. Hoisting grenade launchers onto their shoulders, they took up positions along the column of vehicles.

The 160 hostages, including more than 100 women and children, remained inside. Children peeked out from the buses' shattered windows, while their mothers and other women vigorously waved pieces of white bedsheets, shouting at the Russian soldiers not to shoot.

Once they reached Pervomayskaya, the rebels released eight Dagestani officials who had accompanied them to guarantee safe passage, news reports said.