* At least 17 killed in three days of shelling
* Differences arise over composition of military committee
* Local committee says ceasefire agreed (Updates with ceasefire agreement, quotes)
By Mohammed Ghobari
SANAA, Dec 3 (Reuters) - At least two Yemenis were killed in a third day of shelling in the hotbed protest city of Taiz on Saturday, residents said, before a ceasefire in clashes between troops loyal to President Ali Abdullah Saleh and opposition fighters which have killed 17 people.
Saleh handed over power last month to Vice-President Abd-Rabbu Mansour Hadi, as part of a deal to end 10 months of protests against his 33-year-old rule that has paralysed Yemen.
But the violence has shown little sign of abating.
The governor of Taiz and opposition officials agreed a ceasefire from 2 p.m. (1100 GMT) and the withdrawal of fighters and heavy weapons following a call by Hadi, state news agency Saba reported.
Residents said intermittent fighting could still be heard.
"A seven-storey building has been set on fire," Abdel-Jabbar Mahmnoud told Reuters by telephone from the al-Hasab district in Taiz.
He said residents had fled shelling by government forces based at a security compound in the city.
Tens of thousands earlier defied the shelling to march in the city centre demanding that Saleh be put on trial.
Residents said government forces used artillery, tanks and rockets on Saturday in residential areas of Taiz, trapping about 3,000 families in the commercial hub some 200 km (120 miles) south of the capital Sanaa.
Opposition fighters responded with medium and light fire, they said.
Medics said two people were killed, one of them an activist shot by a sniper during the demonstration. The second was a bakery worker killed in front of his shop. Four people were also wounded, including one woman.
An official from Saleh's party said the latest violence came amid differences with opposition parties over the composition of a military committee agreed last month as part of the transitional deal following Saleh's handover of his powers.
Ten people died in fighting on Thursday, including five government soldiers, and five more were killed on Friday, medics and security sources have reported.
A rights centre run by the opposition put the death toll at 21 people.
Saba quoted security sources as saying that armed groups were behind Friday's attacks on government facilities, including the criminal investigations building, the regional branch of the Immigration and Passports Department and a military camp.
The opposition blamed the army controlled by Saleh loyalists and relatives.
Opposition officials on Friday contacted representatives of the five permanent members of the U.N. Security Council over the fighting, they said.
Saba said British Foreign Secretary William Hague also told Hadi in a telephone call on Friday that the UK was monitoring the situation in Yemen, hoping that "the government of national reconciliation, after it is formed, would ensure security and stability in the capital and in the capitals of the provinces."
AGREEMENT IN DANGER
Prime Minister-designate Mohammed Basindwa, an opposition leader, has warned that his side would rethink its commitments under the transition deal if the fighting in Taiz did not stop.
In a statement, Basindwa said the bombardment was "an intentional act to wreck the agreement" that opposition parties signed along with Saleh, who had backed out of signing the deal brokered by Yemen's Gulf neighbours three times.
Under the agreement, the military committee, headed by Hadi, would run the armed forces and oversee the end of fighting and the return of forces to barracks.
It would be made up of an equal number of people from Saleh's General People's Congress (GPC) and the opposition Joint Meeting Parties (JMP).
An official with the GPC said Saleh's party was not happy about opposition nominees to the committee.
The opposition blamed the Taiz violence on what they said was footdragging in forming the military committee.
"The vice president must act as a consensus president and be responsible for implementing the operational mechanism without delay," he told Reuters.
In separate violence, gunmen killed a colonel in the intelligence service at a coffee shop in the city of Ghayl Ba Wazir in Hadramout province, in southern Yemen, on Friday evening, local officials said. A resident was also killed and three were wounded in the attack, blamed on al Qaeda.
It was the latest in a series of attacks in recent months on senior officers in the army and security forces in southern Yemen.