Another resident, Muse Ahmed, said he had seen the bodies of two government soldiers and two civilians in the area, and "several" wounded during a shoot out that lasted several hours.
"The incident occurred when insurgents targeted patrolling government soldiers with an explosion and then exchanged fire with the soldiers," he said.
It was not immediately clear if he was referring to the same casualties as Ali.
In another part of the city, a government soldier and a civilian were killed when fighting broke out in the residential area of Hararyale.
"The fighting started when the Islamists hurled a hand grenade at government soldiers based nearby, and then fighting ensued between the two sides for nearly five hours, killing a civilian and a government soldier. Three other civilians were wounded," said Abdi Haji, a local resident.
Islamic Courts fighters have launched almost daily attacks on government troops and their Ethiopian allies after being pushed out of power in December 2006.
In a separate incident just on the road between Mogadishu and Afgoye, Ethiopian soldiers shot dead a civilian, a witness said.
"They were conducting an operation on the road, during the operation they shot dead a young man, we do not know why, but maybe they suspected him," said Abdi-shakur, a bus driver, who travelled on the road after the shooting.
Violence continued elsewhere around the impoverished Horn of Africa nation.
In Baidoa, 240km (150 miles) south of the capital, armed men shot dead a government security officer working with the national intelligence department late on Friday.
"They hit him twice in the head," said Aden Bid, the police chief of Baidoa, the current seat of the Somali interim parliament.
In Hudur, in the Bakol region, two people were wounded overnight when armed men hurled a hand grenade at a cinema where young people were watching an Indian film dubbed into Somali.
"We were in the middle of watching an Indian film when an explosion rocked us. We scattered out of the cinema and I saw two wounded people," said Farah Malaq, an eyewitness.
Islamic Court fighters have often targeted cinemas before.
The last time Somalia had a functioning government was in 1991, when warlords used their clan-based militias to topple dictator Mohamed Siad Barre and then fought each other for power.