DAMASCUS - The Syrian regime held funerals on Saturday for 26 people killed in a Damascus suicide bombing that it called a "terrorist attack," promising an "iron fist" response to the second such incident in two weeks.

The opposition has pointed the finger at the regime itself, as it did after similar attacks in the capital on December 23, in which 44 people died.

The funerals were taking place in the Al-Hassan mosque in the working-class Midan neighbourhood where Friday's attack took place. As thousands of regime supporters gathered outside, many waving flags, Damascus mufti Bashir Eid preached a funeral sermon in the presence of several ministers, officials and ordinary people.

"With our souls and our blood we will sacrifice ourselves for you," the crowd outside chanted to President Bashar al-Assad.

The ruling party's Al-Baath daily devoted half of its Saturday issue to the attack, in which 63 people were also wounded, including two pages of colour photos of the carnage.

The headline leading three pages of commentary and interviews said Syrians were calling for the perpetrators to be "struck with an iron fist."

On Friday, the interior ministry said "we will strike with an iron fist all those who undermine the security of the nation."

Another headline said "we are not afraid of oil money," an allusion to alleged involvement in the 10-month-old pro-democracy uprising by Gulf Arab oil states. And the official Ath-Thawra daily said "terrorism is uprooted, not cured, and its eradication is inevitable."

It blamed Islamists, saying they "committed many crimes in the past and they are doing it again today as a sign of defiance." That was a reference to bloody attacks during a Muslim Brotherhood rebellion between 1978 and 1986 which was brutally crushed by Assad's late father and predecessor, Hafez.

The Brotherhood, which has since renounced violence, said on Friday that "we hold the regime, its agents and its gangs, fully responsible for this crime."

It had also accused the government of orchestrating the December 23 attacks that the regime blamed on Al-Qaeda, and called for an international probe, claiming the attack benefited the regime. The umbrella Syrian National Council, which includes the Brotherhood, said Friday's bombing "clearly bears the regime's fingerprints."

The United States condemned the attack, again calling for Assad to step down, while UN chief Ban Ki-moon said "all violence is unacceptable and must stop immediately." Assad ally Iran condemned the "terrorist attack."

A top Arab League official said on Saturday the group has no plans to withdraw its observers from Syria where they are charged with assessing whether the regime is keeping a deal to end the deadly violence.

"No plan to withdraw the observers is on the agenda of the Arab ministerial committee meeting on Syria" in the Egyptian capital on Sunday, the pan-Arab body's deputy secretary general, Adnan Issa, told AFP.

"We are not talking about a pull-out but reinforcing the mission," Issa added. He said there were now 153 observers in Syria with another 10 expected to arrive on Saturday from Jordan.

"The Arab states want the observers to continue their mission, and that it be reinforced," he said.

Activists have called for the League observer mission that has been in Syria since December 26 to admit its failure to stem the bloodshed in the crackdown on dissent and hand the task over to the United Nations.

The world body estimated in December that more than 5,000 people have been killed in Syria since pro-democracy protests against the regime of President Bashar al-Assad erupted last March.

Sunday's meeting in Cairo, where the Arab League has its headquarters, is expected to be briefed by the head of the observer mission.