Israeli troops and tanks moved into Gaza’s second largest city, Khan Younis, for the first time today under intensive artillery strikes as the military pledged to press on with its attack.

The heaviest fighting has been in northern Gaza, with witnesses reporting wave after wave of bombing strikes across the north of the territory accompanied by gunfire from helicopters and artillery from land and sea. Thousands of Palestinians have been ordered to leave their homes or forced to flee the fighting.

Artillery fired from naval ships in the Mediterranean killed 10 Palestinians this morning in Deir al-Balah, in the centre of the Gaza Strip, according to Palestinian medical workers. In Shajaiyeh, east of Gaza City, Israeli troops seized control of three apartment blocks and set up gun positions on the rooftops. Residents were locked in their homes and soldiers confiscated their mobile phones, neighbours said.

Late last night three Israeli soldiers were killed and 24 were wounded, four seriously, when they were accidentally hit by an Israeli tank shell. They were the most serious casualties suffered by Israeli forces since they began their ground offensive on Saturday night, and came when the tank mistakenly fired on a building where the soldiers had taken positions.

There was heavy artillery fire to cover the evacuation of the injured, who included the commander of the Golani infantry brigade, one of Israel’s key fighting forces.

Israel’s defence minister, Ehud Barak, said troops had not finished their operation despite mounting Palestinian casualties and growing international calls for a ceasefire.

“Hamas has so far sustained a very heavy blow from us, but we have yet to achieve our objective and therefore the operation continues,” Barak said.

The Israeli foreign minister, Tzipi Livni, said the offensive was intended to change permanently the shape of Israel’s conflict with Hamas. “When Israel is targeted, Israel is going to retaliate,” she said. Israel has rejected calls for a ceasefire.

The military said it had bombed more smuggling tunnels across the border with Egypt in the south and hit more than 40 other sites across Gaza including buildings storing weapons and rocket-launching areas.

As Israeli troops and tanks pressed deeper into Gaza, the toll of civilian casualties rose rapidly. The UN said at least 94 Palestinians had been killed since the ground offensive began on Saturday night. In one incident yesterday a house in Zeitoun, south-east of Gaza City, was hit by tank shells killing at least nine people, including at least four children. In the Shamali district, north of the city, an Israeli bomb destroyed a three-storey house killing a family of seven, including four children.

In total, at least 550 Palestinians have died since Israel’s operation began, with more than 2,500 injured. Hospitals have been overwhelmed; morgues were crowded with bodies, and injured patients had to be treated in hallways. On the Israeli side eight people, including five soldiers, have died and about 60, mostly soldiers, have been hurt.

The Israeli military said it had killed 130 “Hamas terror operatives” in the past two days, although there was no way to confirm that figure. At least 80 Palestinians have been detained, interrogated and taken into Israel.

In Gaza, Mahmoud Zahar, the most senior leader of Hamas in the territory and a hardliner in the movement, appeared on the party’s al-Aqsa television station and gave a defiant speech threatening attacks not only in Gaza but elsewhere.

“The Zionists have legitimised the killing of their children by killing our children. They have legitimised the killing of their people all over the world by killing our people,” Zahar said. He urged Hamas fighters to “crush your enemy”.

Another Hamas figure, a recognised military spokesman called Abu Ubaida, said thousands of Hamas fighters were waiting in Gaza to take on the Israeli military and said rocket attacks would increase.

More than 40 were fired into southern Israel yesterday, including one that landed in an empty kindergarten, which has been closed since the conflict began, like all schools near the Gaza border. Israeli police said a total of 520 rockets had been fired in the past 11 days of fighting.

Israeli troops are now deployed in and around the major urban areas of Gaza, particularly in the north, including Beit Hanoun, Beit Lahiya and Jabaliya. They have used leaflets, telephone calls and radio announcements to order residents in many areas to leave their homes, forcing at least 15,000 Palestinians to flee to safety elsewhere. At least 5,000 are staying in 11 different UN schools and shelters.

The UN said more than 1 million Gazans were still without electricity or water and that it was increasingly difficult for staff to distribute aid or reach the injured. It said more industrial diesel was needed to reopen the strip’s sole power plant, which has been shut for a week. Ten transformers have been damaged in the fighting.

More wheat grain is needed for food handouts and the UN said Karni, the main commercial crossing, should be reopened to allow it in. Four ambulances and three mobile clinics were destroyed when bombs hit the headquarters of the Union of Health Care Committees in Gaza City.

John Holmes, the UN emergency relief co-ordinator, said Gaza represented an “increasingly alarming” humanitarian crisis and said the territory was running low on clean water, power, food, medicine and other supplies since Israel began its offensive. Israeli leaders claim there is no humanitarian crisis.

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Israeli troops and tanks moved into Gaza’s second largest city, Khan Younis, for the first time today under intensive artillery strikes as the military pledged to press on with its attack.

The heaviest fighting has been in northern Gaza, with witnesses reporting wave after wave of bombing strikes across the north of the territory accompanied by gunfire from helicopters and artillery from land and sea. Thousands of Palestinians have been ordered to leave their homes or forced to flee the fighting.

Artillery fired from naval ships in the Mediterranean killed 10 Palestinians this morning in Deir al-Balah, in the centre of the Gaza Strip, according to Palestinian medical workers. In Shajaiyeh, east of Gaza City, Israeli troops seized control of three apartment blocks and set up gun positions on the rooftops. Residents were locked in their homes and soldiers confiscated their mobile phones, neighbours said.

Late last night three Israeli soldiers were killed and 24 were wounded, four seriously, when they were accidentally hit by an Israeli tank shell. They were the most serious casualties suffered by Israeli forces since they began their ground offensive on Saturday night, and came when the tank mistakenly fired on a building where the soldiers had taken positions.

There was heavy artillery fire to cover the evacuation of the injured, who included the commander of the Golani infantry brigade, one of Israel’s key fighting forces.

Israel’s defence minister, Ehud Barak, said troops had not finished their operation despite mounting Palestinian casualties and growing international calls for a ceasefire.

“Hamas has so far sustained a very heavy blow from us, but we have yet to achieve our objective and therefore the operation continues,” Barak said.

The Israeli foreign minister, Tzipi Livni, said the offensive was intended to change permanently the shape of Israel’s conflict with Hamas. “When Israel is targeted, Israel is going to retaliate,” she said. Israel has rejected calls for a ceasefire.

The military said it had bombed more smuggling tunnels across the border with Egypt in the south and hit more than 40 other sites across Gaza including buildings storing weapons and rocket-launching areas.

As Israeli troops and tanks pressed deeper into Gaza, the toll of civilian casualties rose rapidly. The UN said at least 94 Palestinians had been killed since the ground offensive began on Saturday night. In one incident yesterday a house in Zeitoun, south-east of Gaza City, was hit by tank shells killing at least nine people, including at least four children. In the Shamali district, north of the city, an Israeli bomb destroyed a three-storey house killing a family of seven, including four children.

In total, at least 550 Palestinians have died since Israel’s operation began, with more than 2,500 injured. Hospitals have been overwhelmed; morgues were crowded with bodies, and injured patients had to be treated in hallways. On the Israeli side eight people, including five soldiers, have died and about 60, mostly soldiers, have been hurt.

The Israeli military said it had killed 130 “Hamas terror operatives” in the past two days, although there was no way to confirm that figure. At least 80 Palestinians have been detained, interrogated and taken into Israel.

In Gaza, Mahmoud Zahar, the most senior leader of Hamas in the territory and a hardliner in the movement, appeared on the party’s al-Aqsa television station and gave a defiant speech threatening attacks not only in Gaza but elsewhere.

“The Zionists have legitimised the killing of their children by killing our children. They have legitimised the killing of their people all over the world by killing our people,” Zahar said. He urged Hamas fighters to “crush your enemy”.

Another Hamas figure, a recognised military spokesman called Abu Ubaida, said thousands of Hamas fighters were waiting in Gaza to take on the Israeli military and said rocket attacks would increase.

More than 40 were fired into southern Israel yesterday, including one that landed in an empty kindergarten, which has been closed since the conflict began, like all schools near the Gaza border. Israeli police said a total of 520 rockets had been fired in the past 11 days of fighting.

Israeli troops are now deployed in and around the major urban areas of Gaza, particularly in the north, including Beit Hanoun, Beit Lahiya and Jabaliya. They have used leaflets, telephone calls and radio announcements to order residents in many areas to leave their homes, forcing at least 15,000 Palestinians to flee to safety elsewhere. At least 5,000 are staying in 11 different UN schools and shelters.

The UN said more than 1 million Gazans were still without electricity or water and that it was increasingly difficult for staff to distribute aid or reach the injured. It said more industrial diesel was needed to reopen the strip’s sole power plant, which has been shut for a week. Ten transformers have been damaged in the fighting.

More wheat grain is needed for food handouts and the UN said Karni, the main commercial crossing, should be reopened to allow it in. Four ambulances and three mobile clinics were destroyed when bombs hit the headquarters of the Union of Health Care Committees in Gaza City.

John Holmes, the UN emergency relief co-ordinator, said Gaza represented an “increasingly alarming” humanitarian crisis and said the territory was running low on clean water, power, food, medicine and other supplies since Israel began its offensive. Israeli leaders claim there is no humanitarian crisis.

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Tensions between India and Pakistan are at their highest in nearly a decade. Perhaps not since militants attacked India’s parliament in December 2001 has the prospect of war between the two countries been so high. Then, as with the recent attacks in Mumbai, the assailants were believed to be from Lashkar-e-Taiba, the jihadi militant group created under the auspices of Pakistani military intelligence in the late 1980s to wage guerrilla war in Indian-controlled Jammu and Kashmir.

Pakistan has denied involvement in either of those commando-style attacks on centres of Indian power and privilege, but the denials have curried little sympathy internationally.

One difference this time is that Washington doubts Pakistan’s capacity to fight its wars. In contrast, India, which is earnestly integrating into the international system dominated by the US, is increasingly seen as a more stable client state. The nuclear cooperation agreement between the two nations approved last year is the latest, most visible evidence for this.

The daring, murderous assault of Mumbai last November was another. It was not the first attack by Islamic militants in India, but it was the first in which westerners were deliberately targeted. Ironically, as is the tendency with most non-state actor violence, the attacks galvanised support for India. Unlike Pakistan, which is seen as a source of international terrorism, India is now considered a partner in combating it.

Of course, the reality is somewhat different, as Arundhati Roy eloquently noted in the Guardian last month. But in international politics, perceptions count for a great deal.

For its part, Pakistan has tried to assure the world, particularly the United States and India, that it is cracking down on the militants. Soon after the Mumbai attacks, Pakistani authorities arrested Hafiz Mohammad Saeed, founder of the religious welfare organisation Jamaat-ud-Dawa. Jamaat is widely considered the public face of Lashkar-e-Taiba. Both have been banned by the Pakistan government and the UN security council as terrorist organisations.

Saeed is under house arrest but the arrangement is more precautionary than punitive. He spent a year under house arrest after the 2001 New Delhi attacks and Pakistan has refused an Indian request for his extradition.

In December, Pakistan’s prime minister confirmed the arrest of Zaki-ur-Rehman Lakhvi and Zarar Shah, key leaders of Lashkar-e-Taiba whose extradition has been sought by Indian authorities to no avail.

According to the Wall Street Journal, under interrogation from Pakistani authorities Shah and Lakhvi confessed to involvement in the attacks. The US claims to have intercepted phone calls between Shah and one of the attackers at the Taj Mahal hotel in Mumbai too.

Publicly at least, Pakistan still denies any links between Mumbai and militants within their shores. The interior secretary, Kamal Shah, even went as far as to say that Mohammad Ajmal Mohammad Amin Kasab, the only Mumbai gunman captured alive, was not a “real” Pakistani.

And yet Ajmal’s family was tracked down by the Observer’s Saeed Shah and hesitantly admitted that the lone Mumbai attacker caught alive was his son.

The conflicting public signals reflect an uncertainty on the part of Pakistan’s leadership as to the most appropriate response to the crisis created by the Mumbai attacks.

With national elections slated for May this year, India’s ruling Congress party is under pressure too, particularly to confront Pakistan over its support of, or tolerance for, Islamic militants.

India has threatened unilateral strikes on suspected militant hideouts in Pakistan and, depending on who you speak to, Indian jets either entered or flew close to Pakistan’s airspace. In response, Pakistan has moved many more thousands of its troops to the Kashmir border.

Surprisingly, however, the escalation has not been an automatic boon for India’s hardliners. Despite their best efforts to attack the Congress-led government over its handling of Mumbai, rightwing opposition parties, such as the Bharatiya Janata party, which advocates a more confrontational approach to Pakistan, performed below expectations in elections held in five Indian states soon after the attacks.

Although there are no major elections on the horizon in Pakistan, politicians are wary of a population that, over the last few years, has suffered high inflation and unemployment and dwindling energy supplies. Since a string of attacks against civilians in 2008, including the Islamabad Marriott hotel bombing, terrorism has added to ordinary people’s woes.

Yet again the Taliban insurgency has continued to target ordinary citizens. Most of the victims of the violence are Pakistan’s majority-Muslim population, including thousands of soldiers. Astonishingly, this fact is generally ignored both within Pakistan and abroad.

Sixty per cent of those surveyed in a Gallup-Pakistan poll conducted in October last year felt that the government should do more to rid Pakistan of terrorist activities. A shade under half of those polled felt that the government wasn’t doing enough to fight terrorism.

The extent to which Pakistan’s army still supports militants remains unclear. But even if direct links no longer exist sympathies remain strong. An army spokesman recently described the two most prominent Pakistani Taliban commanders as “patriotic” and downplayed the conflict as a “misunderstanding”. In turn, Pakistan’s Taliban and allied militant groups offered a ceasefire after the Mumbai attacks to enable the army to prepare for a possible attack from India.

Such are the bizarre dualities of the conflict. When I interviewed members of the Taliban in Pakistan’s conflict-ridden Swat region, I was struck by their naive earnestness. One Taliban commander going by the name of Mullah Noor Allam, for instance, claimed that the Taliban were not responsible for destroying girls’ schools. This despite a very public radio broadcast from the purported leader of the Taliban in Swat, Maulana Fazlullah, that women and girls who seek an education risk attacks including acid being thrown in their faces.

If there is one silver lining among the clouds, it is the hope that realism, coupled with a new administration in Washington willing to consider a fresh approach, forces India and Pakistan towards dialogue. Even the former prime minister, Nawaz Sharif, not normally known for his statesmanship, has called for a “normalisation” in India-Pakistan relations.

In truth, neither country can afford anything else.

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Senior political correspondent Andrew Sparrow assesses David Cameron’s plans to help savers with £4.1bn culled from government spending.

Business editor, Deborah Hargreaves, reports on why the 250-year-old crystal glass and fine china company Waterford Wedgeford has called in the receivers.

Professor Gerry Gilmore, of Cambridge University’s institute of astronomy, explains why the Milky Way is heading for a collision with the neighbouring galaxy Andromeda – and why new research shows it will happen sooner than scientists had expected.

And we’ve a clip from George Monbiot’s film about Shell, in which he asks CEO Jeroen Van De Veer about the company’s impact on the environment.

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The Obamas settled into their first day in Washington yesterday, with daughters Sasha and Malia attending their new school and the president-elect trying to inject a sense of urgency into congressional ­leaders about tackling the recession.

The first family took up residence in the capital early, staying at the historic Hay-Adams hotel opposite the White House, so the children could start school on time.

Michelle Obama, who flew into Washington with the girls on Saturday, with the president-elect following a day later, accompanied Sasha, seven, to the Sidwell Friends school’s campus in Bethesda, Maryland, on the outskirts of the capital. She then took Malia, 10, to the main Sidwell campus in the city.

Barack Obama’s team released pictures of the family in their hotel suite dressed for school.

The president-elect left three hours later in a motorcade to Capitol Hill for talks on his economic stimulus package in Congress, which starts today. In keeping with his campaign promise to adopt a bipartisan approach, he met Democratic and Republican leaders.

He had pressed Congress to have a bill ready for signing on his desk on 20 January but congressional leaders dampened his hopes, saying there was little prospect of such a bill being ready before the middle of February. “The reason we’re here today is because the people’s business can’t wait,” Obama told reporters.

His proposals, not surprisingly, were welcomed by the Democrats. Republican leaders gave a mixed response, saying they welcomed proposed tax cuts but were concerned about the overall size of his stimulus package.

Obama is proposing a package totalling between $675bn (£462bn) and $775bn, of which up to $300bn would be in tax cuts. Single workers are to receive $500 each in cuts, while businesses will get in total more than $100bn of the funding.

The scale of the proposed tax cuts will disappoint some liberals, who have been looking for huge New Deal infrastructure projects that would help create jobs.

While the economy is Obama’s top priority, other problems are beginning to pile up, including finding a replacement as commerce secretary for Bill Richardson, who withdrew from the post on Sunday because of an investigation into a business deal in his home state of New Mexico, where he is the governor.

One of the few other remaining vacancies – head of the CIA – was filled yesterday. Democratic officials said Obama had chosen Leon Panetta, former White House chief of staff to Bill Clinton and a Democratic congressman. In an early taste of troubles ahead with Congress, Dianne Feinstein, the Democratic chair of the Senate select committee, was dismissive of Obama’s choice of Panetta. Saying she had not been informed of the selection, she hinted she was unhappy over his lack of experience: “My position has consistently been that I believe the agency is best-served by having an intelligence professional in charge at this time.”

Retired admiral Dennis Blair is Obama’s choice to be director of national intelligence, according to Democratic officials.

The Obamas take up occupancy of the White House at midday on 20 January. The president-elect was in nostalgic mood on the plane taking him to Washington after locking up the family home in Chicago on Sunday. “Malia’s friend had dropped off an album of the two of them together,” Obama said. “They had been friends since preschool and I just looked through the pages and the house was empty and it was a little tough, it got me.”

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George Bush will designate nearly 200,000 square miles of the Pacific Ocean as conservation areas on Tuesday, recasting his record on the environment just two weeks before leaving the White House.

Tuesday’s formal announcement will establish Bush as the leader who has protected more of the oceans than anyone else in the world, environmentalists said.

The three regions in the Pacific Ocean encompass some 195,280 square miles of remote and relatively uninhabited island chains.

They include pristine coral reefs, vanishing marine species and the deepest place on Earth.

Their preservation brought rare praise from environmentalists who have spent much of the last eight years fighting Bush on climate change, air pollution, and wildlife management.

“The president has given the world a Texas-sized gift,” said Diane Regas, manager of the ocean programme at the Environmental Defence Fund.

But the marine reserves were as much a gift from Laura Bush, who was credited with heading off determined opposition from the vice-president, Dick Cheney, as well as business leaders in the Mariana Islands who had lobbied on behalf of fishing and energy exploration.

White House officials, in a conference call with reporters, described three distinct areas: the Mariana Islands in the western Pacific, a chain of remote islands in the central Pacific, and the Rose Atoll off American Samoa.

“These locations are truly among the last pristine areas in the marine environment on Earth,” said James Connaughton, who heads the White House Council on Environmental Quality.

The Marianas Marine National Monument will protect the Mariana Trench - deeper than Mount Everest is tall and five times the size of the Grand Canyon - and a string of 21 active volcanoes and thermal vents.

The area is home to 300 species of stony corals and some of the most diverse fish populations in the Mariana Islands. It also harbours the Micronesian megapode, a bird which uses the heat from the volcanic vents to incubate its eggs.

The Pacific Remote Islands National Monument will cover coral reefs
surrounding Kingman Reef, Palmyra Atoll, Howland, Baker and Jarvis islands and Johnston Atoll and Wake Island.

The islands and atolls are home to nesting sea birds and migratory shore birds, and endangered turtles. The waters off Kingman Reef teem with shark and other predators.

The “tiny but spectacular” Rose Atoll Marine National Monument will protect a coral reef area known for rare birds such as petrels as well as reef sharks and parrot fish, Connaughton said.

The conservation plan will ban commercial fishing, mining and energy exploration within the protected areas. Recreational fishing will be allowed only a limited permit basis

“This is very very big. Basically in the last several years, it’s on par with what we have been able to accomplish on land in the last 100 years,” Josh Reichert, the managing director of the Pew Environment Group, said in a conference call with reporters.

However, Bush fell short of meeting scientists’ recommendation for a protection zone extending 200 miles off the islands.

The protected areas will extend for only 50 miles.

In addition, only the waters between the ocean floor and the rim of the Mariana Trench will be protected - not those rising from the rim to the surface of the water.

The US military will also continue to operate in the monuments.

However, environmentalists said the announcement would help protect oceans that are under threat from overfishing and global warming.

The initiative, coming in the final fortnight of the George Bush presidency, also gives the incoming Barack Obama administration a strong take-off point on ocean conservation.

The move was at odds with the Bush administration’s record on other green issues and even on marine protection. When petrol prices soared last summer, Bush lifted the ban on offshore drilling in the Gulf of Mexico and off California.

But environmentalists who worked with the White House to develop the conservation plan say that Bush had developed a personal commitment to marine protection.

He took the first step in 2006, using a law originally intended for antiquities to create a protected area in nearly 140,000 square miles in the northwestern Hawaiian Islands called the Papahanaumokuakea marine national monument.

It was at the time the world’s largest protected marine area. Last August, Bush asked Connaugton and other administration officials to review the prospects of creating new conservation areas in the Pacific.

The effort met determined opposition from Cheney and local business leaders in the Marianas. But Bush had a key ally in his wife, Laura, who became unusually engaged in policy making. The First Lady arranged briefings for White House staff from scientists who supported the measure to try to blunt Cheney’s influence.

“We and others in the environmental community have been at odds with this administration on lots of things, but if one looks at this one event it is a significant conservation event,” Joshua Reichert, managing director of the Pew Environment Group, said.

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Tony Blair is to receive the United States’s highest civilian award, the Presidential Medal of Freedom, from his friend George Bush next Tuesday, at a White House ceremony during the latter’s last week in office.

The medal, a five-pointed white star, was first introduced by President Harry Truman just after the second world war and later revived to reward eminent citizens for distinguished service in peacetime by president John F Kennedy.

Although among its previous 400 recipients there are American figures such as Frank Sinatra, Doris Day, Bob Hope, Danny Kaye and Arnold Palmer, it has also been presented to every post-war president and to senior politicians and military men.

The medal is awarded “for especially meritorious contributions to security or the national interests of the United States, world peace or cultural or other significant public or private endeavours”. It was not immediately clear last night under which heading the former prime minister had qualified. He is only the second British prime minister to receive the award, following Margaret Thatcher in 1991, though other recipients have included Lord Carrington, the former foreign secretary, and Lord Robertson, former defence secretary and secretary general of Nato.

Blair will find himself among others he will recognise. Donald Rumsfeld received the medal in 1977 for his original period in administration service; vice-president Dick Cheney got his in 1991; and President Bush has previously awarded other prominent figures involved in the Iraq campaign - Paul Bremer, the US’s former director in Baghdad, General Tommy Franks, and George Tenet, former director of the CIA.

Blair was previously also awarded the US’s other highest civilian honour, the Congressional Gold Medal, in 2003, for his support of the US invasion of Iraq, though he has never collected it.

He will receive next week’s award alongside John Howard, the former Australian prime minister, and Álvaro Uribe, the president of Colombia. A White House spokeswoman said the three were being honoured by the president “for their efforts to promote democracy, human rights and peace abroad”.

The award was criticised by the Lib Dems, but Blair’s spokesman said he regarded the medal as reflecting the courage of the British armed forces.

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The renegade Wall Street financier Bernard Madoff is battling to stay out of prison after allegedly breaking his bail conditions by distributing $1m (£700,000) worth of jewellery and personal possessions to his friends and relatives.

Federal prosecutors in Manhattan yesterday asked a judge to jail the 70-year-old fund manager for an “obstruction of justice” in violating an order which froze his assets. The judge deferred a ruling pending written pleadings.

The courtroom revelation emerged as US congressmen roasted senior regulatory officials in Washington for failing to detect corruption in Madoff’s $50bn investment empire. Trustees have sent out 8,000 claim forms to Madoff’s clients who hope to recover a sliver of their lost money.

Leaving the New York penthouse apartment where he has been under house arrest since mid-December, Madoff arrived in court to hear US prosecutor Marc Litt describe him as a potential flight risk. “The case against the defendant is strong and it’s getting stronger,” Litt told magistrate judge Ronald Ellis.

Prosecutors said Madoff and his wife, Ruth, had sent at least five items including “very valuable jewellery” to their children and unidentified friends in Florida.

But Madoff’s lawyer, Ira Sorkin, said the items had been sent before an asset freeze came into effect. He said the possessions were not significant, describing them as heirlooms including cufflinks and an antique watch.

“It happened innocently,” Sorkin told the court. “He’s not a threat to the community and there’s no danger he’s going to flee.”

At a hearing on Capitol Hill, the head of the Securities Investor Protection Corporation gave some hope to victims of Madoff’s scam by revealing that trustees have identified $830m of liquid assets from his firm, on top of $29m already recovered from banks - still a small slice of the $50bn that clients believed was in the fund.

Regulatory chiefs were given short shrift by members of the House financial services committee. Gary Ackerman compared the SIPC and the securities and exchange commission to “Keystone cops” and said watchdog agencies had failed to watch out for anybody.

Brad Sherman, a Democrat from California, called on the SEC’s five commissioners to quit: “You would think all members of the SEC should at least offer President Obama a resignation and let him decide.”

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Two London-based men accused of inciting terrorist attacks in Pakistan were acting in self-defence, a court heard yesterday.

Faiz Baluch, 27, from Wembley, north London, and Hyrbyair Marri, 40, from Ealing, west London, have both pleaded not guilty to assisting terrorism and incitement to murder abroad.

Defending Baluch, Baroness Helena Kennedy QC told Woolwich crown court he was a “casualty of geopolitics” and the US-led war on terror.

It is alleged that the two men encouraged acts of violence against Pakistan via website Baloch Warna (Baluch Youth).

“This case is not about jihad or al-Qaida or Osama bin Laden,” said Kennedy. “These men abhor the distortion of Islam by Osama bin Laden.”

She said the people of Baluchistan were “suffering a slow death” at the hands of the Pakistan government. Their land had been used for nuclear weapons tests in 1998, which had caused cancer and leukaemia. Those who protested against the behaviour of the Pakistani authorities, she said, faced prison, torture and death. “This case is about classic self-defence, not regime change.” If the case was not so serious, she said, “it would be laughable.”

After 9/11, said Kennedy, “a lot of nations called their dissidents terrorists” and the former Pakistani dictator, Pervez Musharraf, had used this excuse to label the Baluchis as such. “In law, people are entitled to defend themselves,” she said. “If the Germans had marched into Britain, we would have been entitled to resist.”

Giving evidence, Baluch said he had been born in the part of Baluchistan now in Iran but had been educated in Quetta, which was under the control of Pakistan. He came to Britain as an asylum seeker in 2002, and worked as a kitchen porter in Coventry before meeting fellow exile Marri and moving to London.

Baluch said the website, which was set up in 2004, was “to report what is happening, the human rights violations and to bring the plight of the Baluch people to international attention.” He denied he ever used the site to incite people to kill.

He told the court about the shelling of the Baluch village of Dera Bugti in 2005 in which around 30 people died after protests that a woman doctor had been raped by members of the Pakistani military.

The case, which started last month, continues.

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