Kathmandu - Nepal's royal regime cracked down on protesters yesterday in an attempt to stifle further disruption after two weeks of demonstrations aimed at toppling the country's monarch, King Gyanendra.

Security forces shot dead at least two people in the south-east of the country and announced a shoot-on-sight 18-hour curfew in the capital, in a clear attempt to scuttle opposition plans to bring 100,000 people on to the ring road skirting the capital today.

Yesterday's bloody encounter came in the town of Chandragadi, 300 miles south-east of Kathmandu, where police sprayed demonstrators with bullets. A defence ministry spokesman said two people were killed, although a UN official said five died.

Officials defended the firing claiming that protesters had defied a ban on gatherings and were sacking government buildings. In the capital police tried to smother impromptu gatherings, and clashes occurred.

There were also protests by several thousand people in Kathmandu, where demonstrators again hurled bricks at police, who responded with tear gas, rubber bullets and baton charges. While nearly all in Kathmandu said that they were hoping Thursday's protest remained peaceful, many said they did not fear violence. "If we are faced with violence tomorrow, we will burn the palace," said Ankil Shresthra, a 22-year-old student. "The king will die."

One protester said defiance would "continue until the king leaves forever".

The palace appears, too, to be in no mood to compromise with the alliance created between the political parties and Maoist guerrillas. Ministers claim Nepal's left-wing insurgents violently infiltrated the rallies, the politicians using this as a justification for the tear gassing and arrests of thousands of demonstrators. Human rights groups, meanwhile, called on the international community to ban the king and his court from going abroad and to freeze the regime's assets.

Amnesty International's secretary general, Irene Khan, said: "King Gyanendra's government seems impervious to the suffering of the people. The international community must apply pressure through targeted sanctions that will have a direct impact on the king and his cohorts."

The opposition rally would dwarf anything seen in the capital in recent times and the crowd was expected to march on the palace. Many in the capital were nervous of the outcome of such events after rumours spread that Maoist supporters would take part.

In a clear message to the Kathmandu public more than 200 academics were detained for marching despite a day-long curfew in the resort town of Pokhara, near the Annapurna mountain range.

There were signs that the palace was trying to win back politicians ahead of talks with Indian diplomats. India, a burgeoning global power that does not want disorder on its doorstep, sent a special envoy to press the king to reach a deal with the parties, who are demanding a new constitution that would limit, or eliminate, the monarchy's role. "I am always optimistic," said the envoy, Karan Singh, who met the opposition yesterday and was to meet King Gyanendra today.

The government freed two top opposition leaders, three months after they were detained with no explanation. Many saw the move as a government attempt to appear conciliatory as the Indian envoy arrived. After their release both leaders struck a note of defiance. "We will launch the protest [against the king] in an effective way until full sovereignty is returned to the people," said Madhav Kumar Nepal, leader of the Communist party of Nepal.

A diplomatic spat between the palace and Washington also broke out yesterday over comments made by the US ambassador to Nepal. Nepal's royal government summoned the envoy, James Moriarty, to protest about his remarks suggesting that if the Himalayan nation's king did not compromise with his opponents he could end up fleeing the country.

Despite a general strike squeezing Nepal's economy experts say the country could withstand weeks of disruption and even sanctions from donors.

Ken-ichi Ohashi, the World Bank's country director for Nepal, said in an interview with Reuters: "I think evidence is pretty clear that if a country decides to endure some hardship the economy just doesn't collapse very easily."

The Nepali economy was well integrated with the Indian economy, Mr Ohashi added, and the real pressure would come from the streets. "If a million people came out, I think the king would have certainly have to take notice. Donors threatening to cut aid I don't think is going to do it."