The falling snow mingled with hot black ash. A choking gray steam rose as shopkeepers dug through the rubble of 87 market stalls burned to the ground the night before.

Residents and merchants in this Kashmiri town said Indian army troops set fire to the market Monday because they were infuriated after two soldiers were shot by insurgents. The troops stopped firetrucks from approaching for five hours, witnesses said; by the time the trucks arrived, there was nothing left.

A similar scene unfolded at the site of a recent bomb blast in a snow-covered vegetable market in Srinagar, the region's main city 15 miles southeast of here. Angry vendors pointed out the spots where 13 people and a horse were blown to bits by the powerful explosion on Jan. 4.

This time it was the insurgents who had attacked, ostensibly targeting soldiers who came to buy potatoes and onions each morning. Once again, however, it was ordinary Kashmiris who bore the brunt of a ruthless war between Indian forces and separatist Islamic guerrillas. Hardly a week goes by in the Kashmir Valley these days without a fresh round of lethal violence. The body count rises almost daily, and even audacious guerrilla assaults on army posts now merit only a few paragraphs in local newspapers unless an important officer is killed.

Just six months ago, Indian authorities declared the local insurgent movement vanquished. A decade of counterinsurgency campaigns had left most Kashmiri rebels dead or behind bars, and although many people still clung to a dream of independence from India, their once fiery passions had retreated into a fearful, sullen passivity.

Today, a newly revived rebel movement has Indian forces on the defensive. It is better armed, better trained and more daring than the hodgepodge of Kashmiri youths with rifles and grenades who once dreamed of forcibly driving India from this part of their homeland--a disputed Himalayan territory divided between India and Pakistan.

The operating methods of these new guerrillas are secretive and spectacular. In the past, armed squads would ambush military patrols or hurl grenades at police posts and run away. Now, they force or sneak their way into protected security facilities with guns blazing, seemingly prepared to die. Since November, they have attacked half a dozen security compounds in the region, leaving more than 50 people dead.

"For the first time in 10 years, the army is on the receiving end," said Tahir Mohideen, editor of a weekly Kashmiri newspaper. "In the past the army would cordon off areas, stage crackdowns and catch or kill militants. Now it is the other way around."

The difference, according to Indian military officials, is that this time the insurgents are mostly "foreigners"--commandos from the Pakistani part of Kashmir, other parts of Pakistan and, in some cases, other Muslim countries. They belong to armed branches of Islamic fundamentalist groups based in Pakistan, and their aim is not only to liberate Kashmir but to impose Islamic rule across the region.

The security forces, initially caught off-guard by the ruthless new assaults, have responded with a vengeance. Counterinsurgency troops raid villages and urban neighborhoods daily. Once abandoned security practices, such as frisking bus passengers and making residents squat outdoors for hours while their homes are searched, have been reinstated. Military facilities are being fortified with extra barricades and weapons.

According to witnesses, some security units are retaliating against the public, as in the market burning in Pattan. Army spokesmen said the blaze was started by cross-fire with the insurgents, while police said it was caused by an electrical shortage. Residents said troops used gasoline and mortars to set the block afire.

The result of such incidents, local Kashmiris say, is that popular anger against the Indian government is rising--and support for the insurgents, however alien their origins and ideology, is spreading.

"This new militancy is very good for us," said a Srinagar bakery owner named Shabbir Dar. "We Kashmiris have been sitting in our houses for so long, feeling lost and afraid. But we all want our freedom. So we say, welcome Pakistanis, welcome Afghanis, welcome Lebanese, welcome anyone who can help us."

Not everyone shares this enthusiasm. Political opposition leaders are clearly uncomfortable about the invisible "guest" rebels in their midst--partly because of their radical Islamic agenda, partly because their aggressive tactics rob Kashmiris of their victim status and partly because their Pakistani origins reinforce India's long-standing contention that the Kashmir independence movement is a tool of Pakistan.

"We are working on the same battle, and if someone says they want to help my cause, it's hard to object," said Mirwaiz Umar Farooq, the top Muslim cleric in Srinagar and acting chairman of the main opposition party, the All Parties Hurriyet Conference. At the same time, he said, "it has come as a shock. A Kashmiri would never have thought of attacking a security forces brigade. These people are willing to do anything. It's a full-fledged war."

Even more alarming to local leaders was the Dec. 24 hijacking of an Indian Airlines flight, in which the hijackers said they were acting in the name of Kashmiri freedom and demanded the release of 36 insurgents from Indian prisons; ultimately, three were freed on New Year's Eve in exchange for 155 passengers held hostage.

All opposition groups here have condemned the crime and said they know nothing about the hijackers' origins or motives. But Indian authorities have identified the people it believes carried out the hijacking and accused them of working in tandem with Pakistan.

Indian military officials here insist they are not fazed by the rash of attacks. They assert that new insurgents cannot long sustain their campaign against the overwhelming presence of 700,000 Indian troops in the region and that most Kashmiris--who practice a tolerant version of Islam--are turned off by their violent tactics and radical agenda.

"I don't diminish the importance of these attacks, but they won't shake us up," said K. Vijay Kumar, inspector general of the Border Security Forces in Kashmir. "The local people may have gripes, but it doesn't mean they subscribe to someone taking over with a fundamentalist bent."

Even though many Kashmiris may be wary of the foreign insurgents, their bitterness toward Indian forces appears to be far deeper. Last week people in Pattan, silently watching as their shops and homes smoldered in the snow, spoke with anguish and anger about the humiliation and abuse they say they have suffered for years at the hands of Indian troops.

Even at the vegetable market in Srinagar, where what officials called a poorly planned rebel bombing had just killed or maimed many of their friends, customers and pack animals, most vendors were uniformly reluctant to blame the insurgents. Instead, they suggested the attack was probably a government plot to evict them.

"We have been here for years, and the freedom fighters have always left us alone. We are poor laborers, and they have no reason to harm us," said Ismael Vargar, who sells grapes and potatoes. "The government is ruling by force. We have lost everything, and no Indian official has even come to have a look. They are the ones who make us Kashmiris suffer."

CAPTION: A man searched the rubble of his Pattan bakery, which was destroyed Monday when Indian troops set fire to a market.

CAPTION: Kashmiris stood in a street in Srinagar on Wednesday in front of an Indian government military armored vehicle nicknamed "messenger of peace."