* Activists say 1,500 shops in old souk have been burnt
* Damage to the site will cost millions of dollars to repair
* The fire highlights destruction of cultural heritage
* Egypt's Mursi says Syria govt butchering its people
By Mariam Karouny
BEIRUT, Sept 30 (Reuters) - Large parts of Aleppo's covered market, the largest of its kind in the world and a UNESCO world heritage site that traces its history back to the 14th century, have been reduced to ashes as government forces and rebels fight for control of the city.
The historic market was largely undamaged by earlier fighting in Syria's largest city, but in the early hours of Saturday some of its shops caught fire during clashes in circumstances that remain unclear.
The flames spread rapidly, partly because many of the small retail units tucked beneath the market's ancient arches were full of fabric, and have now ravaged at least 1,500 shops and are still burning, activists said.
"It is not only the souk that is burning, my heart is burning as well," said an anti-government activist called Hashem who learnt the craft of jewellery-making in the souk before the revolt against President Bashar al-Assad erupted last year.
The souk's devastation is a reminder of how the 18-month-old conflict - in which both sides are struggling to gain the upper hand and activists estimate 30,000 people have been killed - is destroying Syria's rich cultural and historical legacy as well as the lives of its 22.5 million people.
Aleppo's old city is one of several places that UNESCO, the United Nations cultural agency, has designated world heritage sites and which are now at risk.
UNESCO believes that five of Syria's six world heritage sites have already been damaged. Other heritage sites include the ancient desert city of Palmyra, the Crac des Chevaliers crusader fortress and parts of old Damascus.
It was not immediately clear how the fire in the market started but activists accused government forces of using incendiary bullets to attack rebels who had taken up positions there after launching a new offensive in the city on Thursday.
"The fighters tried to put out the fire but failed to do so because snipers were shooting at them," another activist said.
"The fire is still raging and at least 1,500 shops have now been burnt down."
The market - Souk al-Madina - comprises a network of vaulted stone alleyways and carved wooden facades and was once a major tourist attraction and a busy cosmopolitan trading hub on the ancient Silk Road from China.
Its many narrow alleys have a combined length of 13 km (8 miles) making it the largest covered market in the world and it sells everything from soap to jewellery to clothing.
ANGER TOWARDS THE REBELS
Activists said they were working to try to document the scale of the damage, which it is estimated it will cost millions of dollars to repair.
Some anti-government activists have privately expressed anger towards their own fighters for taking up positions in the old city. "We all know that this is a criminal regime and it will do anything," said one activist who declined to be named. "That is why the fighters had no business being in the souk. Why did they go there?"
But other activists defended the rebels' behaviour.
"The fire spread as far as the Umayyad Mosque, the fighters who managed to stop it from spreading even further," an activist from the city called Yasser said.
"For all those asking why the fighters are in the Old City, we say we have only entered to liberate it"
Rebels said they were involved in heavy clashes in Aleppo on Sunday, saying they had attacked the Neirab military air base. They also reported fighting in Arkoub, east of the city.
The failure of either side to break the military deadlock is reflected diplomatically, with foreign powers divided over how to act. Western states and Gulf Arab countries back the opposition but most seem reluctant to interfere, while Russia, China and Iran back Assad.
Speaking to a conference of the ruling AK party in Turkey, Egyptian President Mohamed Mursi - who has said he opposes military intervention in Syria - said he favoured a diplomatic solution facilitated by the Arab League, the United Nations and individual countries across the world.
He said the Syrian people were being "butchered and killed day and night" and that he fully backed their struggle to overthrow Assad.
"We will not be calm, we will not settle down until this bloodshed stops and until the will of the Syrian people to choose their own leader is realised and until this current oppressive leadership disappears," he said.
"This oppressive regime is spilling the people's blood and the Syrian people must gain full liberty."
Activists reported fresh clashes in Damascus suburbs on Sunday and at least eight bodies were reported to have been found in the northern suburb of Barzeh. Clashes were also reported to have erupted in some parts of Homs city.
Syrian state television said a suicide bomber had killed at least four people in the northern city of Qamishli. The Syrian Observatory for Human Rights said at least eight members of the security forces had been killed in the explosion which it said targeted a police station.