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INCHEON, South Korea -- South Korea's troops were on high alert Wednesday as their government exchanged threats with rival North Korea following a frightening military skirmish that ratcheted tensions on the peninsula to new extremes.
President Barack Obama reaffirmed Washington's pledges to protect ally Seoul after the North shelled a South Korean island near their disputed border, killing at least two marines and wounding civilians in what U.N. Secretary-General Ban Ki-moon called one of the "gravest incidents" since the end of the Korean War.
In a conversation with South Korean President Lee Myung-bak, Obama said the United States stands "shoulder to shoulder" with Seoul. The White House said the presidents agreed to hold combined military exercises and enhanced training in the days ahead.
South Korea vowed massive retaliation should North Korea attack again, and said Wednesday it would strengthen military forces in the disputed western waters near the island of Yeonpyeong and halt aid to the communist North. The North warned of more military strikes if the South encroaches on the maritime border by "even 0.001 millimeter."
South Korea sent two ships carrying 2,000 boxes of relief supplies to the stricken island Wednesday, Coast guard official Kim Dong-jin said. He said that about 340 residents escaping the island were to arrive at the port city of Incheon aboard a Coast Guard ship around mid-afternoon.
Images released by the local government and obtained through YTN television showed people huddled in emergency shelters, children wrapped in blankets, rows of destroyed houses with collapsed walls, blown out windows and charred roofs. A man with a shovel walked through the rubble.
The skirmish began Tuesday when North Korea warned the South to halt military drills near their sea border, according to South Korean officials. When Seoul refused and began firing artillery into disputed waters -- but away from the North Korean shore -- the North retaliated by shelling Yeonpyeong, which houses South Korean military installations and a small civilian population.
Seoul responded by unleashing its own barrage from K-9 155mm self-propelled howitzers and scrambling fighter jets. Two South Korean marines were killed in the shelling that also injured 15 troops and three civilians. Officials in Seoul said there could be considerable North Korean casualties.
Shin Sung-hee, a fisherman, said he was mending his fishing net near a port on Yeonpyeong when he saw columns of black smoke and fire billowing from the hills.
"I couldn't think of anything. I just thought my wife would be in danger, so I rushed to my house," Shin said.
His wife, Lee Chun-ok, said that when she fled her partly collapsed house, she saw black smoke engulfing the town and fires erupting from nearby hills; a woman was crying on a bridge. Her husband ran over and told her they had to escape, so they ran to a port and managed to get on a ferry with several hundred other people.
The U.S. government called the North's barrages an outrageous, unprovoked attack, but sought to avoid any escalation and did not reposition any of its 29,000 troops stationed in the South.
South Korean Defense Minister Kim Tae-young told lawmakers Wednesday that the military will send reinforcements to five islands near the disputed sea border, but provided no details. "South Korea maintains military readiness to deter North Korea's additional provocations," he said.
South Korea said Wednesday that, despite the artillery exchange the day before, it would continue another previously scheduled military drill set for a different part of the Yellow Sea, about 70 miles (110 kilometers) south of the disputed waters near Yeonpyeong.
The Joint Chiefs of Staff said the military drill by the South Korean army, navy, air force and marines would continue until Nov. 30 as previously scheduled.
Separately, South Korea said it was suspending promised aid shipments of cement and medicine worth 580 million won ($506,000), Unification Ministry spokesman Chun Hae-sung said. The government also ordered eight civic groups to stop delivering aid worth 2.7 billion won ($2.3 million) to North Korea.
The top U.S. military officer in South Korea, Gen. Walter Sharp, condemned North Korea's "unprovoked" artillery attack in a statement Wednesday and called on the North to abide by the armistice that ended the 1950-53 Korean War.
"These actions are threatening the peace and stability of the entire region," said Sharp, who commands U.S. forces in South Korea as well as the U.S.-led UN Command.
The UN Command has called on North Korea to engage with it in high-level military talks to "de-escalate the situation," the statement said.
The confrontation lasted about an hour and left the uneasiest of calms, with each side threatening further bombardments. In Seoul, South Korea's capital of more than 10 million people, citizens went about their business Wednesday with shops, offices and financial markets open as usual, but with the previous day's skirmish on their minds.
"We are concerned that a war might break out," said Oh Duk-man, who was walking in downtown Seoul.
In Young-joo, another pedestrian, called for a strong response. "Our government has to react very strongly against North Korea after they invaded us in such a daring way," she said.
North Korea's apparent progress in its nuclear weapons program and its preparations for handing power to a new generation have plunged relations on the heavily militarized peninsula to new lows in recent weeks.
The attacks focused global attention on the tiny island and sent stock prices down worldwide.
The South Korean president, who convened an emergency security meeting shortly after the initial bombardment, said an "indiscriminate attack on civilians can never be tolerated."
"Enormous retaliation should be made to the extent that (North Korea) cannot make provocations again," Lee said.
North Korea does not recognize the western maritime border drawn unilaterally by the U.N. at the close of the conflict, and the Koreas have fought three bloody skirmishes there in recent years. But this clash follows months in which tensions have steadily risen to their worst levels since the late 1980s, when a confessed agent for North Korea bombed a South Korean jetliner, killing all 115 people aboard.
The government in Pyongyang has sought to consolidate power at home ahead of a leadership transition and hopes to gain leverage abroad before re-entering international talks aimed at ending its nuclear weapons programs.
In March, North Korea was blamed for launching a torpedo that sank the South Korean warship Cheonan while on routine patrol, killing 46 sailors. South Korea called it the worst military attack on the country since the war. Pyongyang denied responsibility. South Korea did not retaliate for the sinking of the Cheonan.
Six weeks ago, North Korean leader Kim Jong Il anointed his youngest son, Kim Jong Un, heir apparent. This week, Pyongyang claimed it has a new uranium enrichment facility, raising concerns about its pursuit of atomic weapons.
Yeonpyeong lies a mere seven miles from -- and within sight of -- the North Korean mainland. Famous for its crabbing industry, it is home to about 1,700 civilians as well as South Korean troops. There are about 30 other small islands nearby.