The sources said rebels suspected of belonging to the Salafist Group for Preaching and Combat (GSPC) fired automatic weapons at a police patrol in the city on Sunday.
State radio said army units tracked down and killed the rebels, who had taken refuge in a building in the poor Belcourt district.
"We're relieved. We wiped out two terrorists," said a policeman at the scene.
Several officers and one civilian were injured. The interior ministry was not available for comment.
Increase in attacks
Rebel attacks have fallen significantly in the North African
country in recent years but usually intensify ahead of the holy month of Ramadan due to start this month.
"Special security measures will be implemented during
Ramadan to counter any terrorist threat," a security source
Almost 50 security force members and civilians were killed
by rebels in September, the source said.