Rescuers found the burned bodies Wednesday of two islanders killed in a North Korean artillery attack _ the first civilian deaths from a skirmish that marked a dramatic escalation of tensions between the rival Koreas.

The barrage on the tiny island of Yeonpyeong in the western waters near the Koreas' maritime border also killed two South Korean marines and wounded 18 others Tuesday in what U.N. Secretary-General Ban Ki-moon called one of the "gravest incidents" since the Korean War.

As South Korean troops remained on high alert and buildings continued to burn, exhausted evacuees streamed into the port city of Incheon after spending the night in underground shelters, embracing tearful family members and telling harrowing tales of destruction.

President Barack Obama underlined Washington's pledge to "stand shoulder to shoulder" with Seoul, and called upon China to restrain ally Pyongyang. Seoul and Washington reaffirmed plans to stage joint military exercises later this week in the Yellow Sea, just 70 miles (110 kilometers) south of the island.

The U.S. stations more than 28,000 troops in South Korea to guard against North Korean aggression, a legacy of the bitter three-year conflict that ended in a truce, not a peace treaty, in 1953.

In Pyongyang, residents boasted that the exchange showed off their military's strength and ability to counter South Korean aggression.

"I think this time our military demonstrated to the whole world that it doesn't make empty talk," Ri Pong Suk told TV news agency APTN in the North Korean capital

Artillery and gunfire break out sporadically along the land and maritime borders dividing the two Koreas, and have erupted into deadly exchanges four times since 1999.

And in March, North Korea was accused of launching a torpedo that sank a South Korean warship, killing 46 sailors. Seoul called it the worst military attack on the country since the war, but Pyongyang has denied responsibility.

The North's most notorious act of terrorism was the 1987 bombing of a South Korean airliner that claimed 115 lives. And in 1996, a group of North Korean spies slipped ashore from a submarine and killed three civilians and a South Korean army private while roaming the countryside for weeks.

However, Tuesday's shower of artillery was the first to strike a civilian population. The bodies of two men, believed in their 60s, were pulled out from a destroyed construction site Wednesday, the coast guard said.

South Koreans see the killing of civilians as taking the confrontation to a new level, one analyst said.

"It's clearly a line for people, and crossing that line puts it in a different category," said John Delury, an assistant professor at Seoul's Yonsei University Graduate School of International Studies. "People here are feeling very conflicted, outrage and sorrow."

The island, famous for its crabbing industry, still looked like a war zone Wednesday, with burned-out buildings still smoldering, windows smashed and shattered, and huge craters from shells pockmarking homes, according to footage aired by YTN television.

One of the main targets was a supermarket that once housed the office of a military intelligence agency, local official Choi Chul-young told The Associated Press by telephone from the island.

It wasn't immediately clear if the North Korean military mistook the shop for a military intelligence site.

Islanders said the barrage midafternoon Tuesday took them by surprise.

"I heard the sound of artillery, and I felt that something was flying over my head," said Lim Jung-eun, 36, who fled Yeonpyeong island with three children, including a 9-month-old strapped to her back. "Then the mountain caught on fire."

About 10 homes were directly hit and 30 total destroyed in the barrage, a local official said by telephone. She asked not to be identified. About 1,700 civilians live on Yeonpyeong in addition to troops stationed on the island just 7 miles (11 kilometers) from North Korean shores.

Hundreds of residents arrived early Wednesday on the first ships from the island with stories of destroyed homes and panic.

"Right after I saw the news, I called my daughter," said Chung Doo-sun, 55, who lives in nearby Gimpo city. "She was crying and told me the windows of her home were all shattered."

His son-in-law, a marine based on the island, was not hurt. But Chung said he only slept one hour because of worries about his daughter and grandchildren.

"I'll never allow my daughter and my grandchildren to go back to Yeonpyeong island," Chung said. "North Korea is so unpredictable."

One 68-year-old man said he still holds bitter memories about the Korean War.

"North Korea has not changed at all," he said, asking to be identified by his surname, Kim. "They are so cruel."

The chaos at the port contrasted with the calm in Seoul, South Korea's capital of more than 10 million people, where citizens went about their business Wednesday. Still, the skirmish weighed on people's minds.

"We are concerned that a war might break out," said Oh Duk-man, who was walking in downtown Seoul.

In Young-joo called for a strong response. "Our government has to react very strongly against North Korea after they invaded us in such a daring way," she said.

South Korea said it would strengthen military forces in the western waters near Yeonpyeong and halt aid to the communist North.

The North, meanwhile, has warned of more military strikes if the South encroaches on the maritime border by "even 0.001 millimeter."

The skirmish began when North Korea warned the South to halt military drills near their sea border, according to South Korean officials. When Seoul refused and fired artillery into disputed waters _ away from the North Korean shore _ the North retaliated by shelling Yeonpyeong, which houses South Korean military installations as well as civilians.

Seoul responded by unleashing its own barrage from K-9 155mm self-propelled howitzers and scrambling fighter jets.

Officials in Seoul said there could be considerable North Korean casualties but the exact toll wasn't clear Wednesday.

North Korea's main Rodong Sinmun newspaper featured a photo of leader Kim Jong Il and other senior officials visiting a food factory as well as a military communique warning of further strikes against South Korea.

"The South Korean puppets should clearly know that countering the firing of the provocateurs with merciless strikes is the mode of our military's counteraction," resident Ri Myong Hun told APTN in Pyongyang.

At a military hospital in Seongnam, just outside of Seoul, relatives wailed in grief as they filed out of a memorial Wednesday for the two dead marines.

"Bring him back!" cried out Kim O-bok, 50, mother of 22-year-old marine Seo Jeong-woo.

Shin Hyun-don, head of South Korean Joint Chiefs of Staff's Operation Planning Department, accused Pyongyang of "inhumane atrocities indiscriminately firing artillery at defenseless civilians" and warned that further provocations would draw punishment.

The exchange of fire is the first since Kim's youngest son and anointed her, Kim Jong Un, made his international public debut by appearing at a massive military parade marking the 65th anniversary of the ruling Workers' Party.

It also comes days after Pyongyang showed off its uranium enrichment facility to a visiting U.S. scientist, raising new concerns about its pursuit of atomic weapons.

The government in Pyongyang has sought to consolidate power at home ahead of a leadership transition and hopes to gain leverage abroad before re-entering international talks aimed at ending its nuclear weapons programs.

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Kwang-tae Kim reported from Seoul. AP writers Ian Mader and Foster Klug in Seoul, and Anne Gearan in Washington, contributed to this report.