French troops' initial clashes with Islamist militants in Mali have shown that the fighters are better trained and equipped than France had anticipated before its intervention, French and other UN diplomats have said.

The realisation that fighting could be bloodier than anticipated in the weeks or months ahead may make western countries even more reluctant to get involved alongside France.

French officials, however, hope it will rally their allies behind them, diplomats said.

"The cost of failure in Mali would be high for everyone, not just the people of Mali," an African diplomat said yesterday.

Like the other diplomats, he spoke on condition of anonymity to discuss sensitive military and diplomatic issues.

The seizure of dozens of hostages in neighbouring Algeria, where troops launched a military operation to rescue the captives from Islamist militants at a desert gas plant, also raises the possibility that Islamist violence could snowball beyond Mali's borders.

The diplomats were speaking after French forces had their first encounters with Islamist fighters in recent days.

The ground war appeared headed for escalation yesterday as French troops surrounded the town of Diabaly, trapping rebels who had seized it three days ago.

"Our enemies were well-armed, well-equipped, well-trained and determined," a senior French diplomat said.

"The first surprise was that some of them are holding the ground," he said, adding that others had fled during six days of French air strikes aimed at halting the militants' offensive and preventing the fall of Mali's capital, Bamako.

French, Malian and African forces are facing off against an Islamist coalition that includes al-Qaeda's North African wing, AQIM, and the home-grown Ansar Dine and MUJWA militants.

The motley mix of Tuareg rebels, Islamists and foreign jihadists has been united by the threat of foreign military intervention, which the UN Security Council called for last month.

Some of the militants are believed to have been trained and armed by the government of late Libyan leader Muammar Gaddafi, who was ousted and killed by rebels in a 2011 civil war.

Up to 700,000 expected to seek refuge from Mali violence

Up to 700,000 people are expected to be uprooted by the violence in Mali, including 400,000 who could flee to neighbouring countries in the coming months, the United Nations refugee agency has said.

"We believe there could be in the near future an additional 300,000 displaced inside Mali and up to 400,000 additional displaced (refugees) in neighbouring countries," UNHCR spokeswoman Melissa Fleming told a news briefing in Geneva.

Some 147,000 Malians have already fled to countries including Mauritania, Niger, Burkina Faso and Algeria since the crisis began last year.

Another 229,000 Malians are already internally displaced within Mali.

Ms Fleming said: "We have been hearing horrific accounts from refugees in the neighbouring countries.

"They report having witnessed executions, amputations, and they say also large amounts of money being offered to civilians to fight against the Malian army and its supporters.

"Disturbingly we are also hearing accounts that there are children among the rebel fighters."