"There were scores of angry Jewish residents, mainly younger people who set fire to the homes, the tension is very high here, things are on a knife-edge," Hawary told the Reuters news agency.

Mixed neighbourhood

The ancient port of Acre is populated by both Jews and Arabs who live in adjacent and some mixed neighbourhoods.

Israeli police earlier had raised their alert after two days of clashes in Acre during the Jewish holiday of Yom Kippur.

Police said they were prepared in case the violence spread to other parts of the country.

Five hundred officers had been sent to assist the 200-strong local force.

Unrest erupted on Wednesday when an Arab motorist drove into a neighbourhood where Arabs and Jews live, playing his car stereo loudly as ceremonies marking Yom Kippur were under way, Rosenfeld said.

Driver assaulted

A group of Jewish youths assaulted the Arab driver accusing him of deliberately disrupting the sanctity of Yom Kippur, a day when observant Jews are not allowed to drive.

"Rumours then spread out, namely from mosques, claiming that the motorist had been killed, prompting several hundred Arabs to take to the streets," Rosenfeld said.

He said that about 100 cars and 40 shops were damaged before roadblocks were set up to dvide the two sides.

Police said that two protesters and a police officer were slightly injured during the two nights of violence, while eight Arabs and four Jews were detained.

Football matches planned for the weekend and an annual theatre festival that was scheduled to be held next week were cancelled.

"The atmosphere in the city is not one that is right for a festival," Albert Ben-Shushan, the festival's director, told Israel's Army Radio.

"When it all ends, and fades, and the dust settles, we'll decide."

But some MPs criticised the decision to call off the festival, which brings thousands of visitors to acre and is a major boost for local businesses.

"It  is an expression of co-existance in Acre," Ophir Pinez-Paz, who heads the Knesset's Internal Affairs Committee, said. He insisted that the festival should be held "despite the events and maybe because of them".