In the streets of Gori, where Stalin was born, the people were still in a state of shock yesterday after an attack by jets from Russia, the country he once ruled. Smoke was pouring from three apartment blocks devastated by a missile strike that appeared to have missed its target, a nearby military training ground, and nobody knew how many people had been killed or injured.

Roza Etseteshvili was one of the lucky ones. Pointing to a singed plastic bag in the street, which contained scraps of a loaf of bread, she said: "Look – that's what saved my life." Yesterday morning she did the washing-up at her flat at 12 Sukhishvili Street, the five-storey apartment block where she has lived for the past 32 years, and headed across the road to buy the bread. "As I was coming home, I heard the roar of jets," she said. "I fell to the ground instinctively, and then there were these painfully loud bangs."

Mrs Etseteshvili got away with a small piece of shrapnel in her leg. But her neighbours, a man in his twenties and his pregnant wife, were killed instantly as they got into their car to flee. "They were such lovely people; they were so excited about the baby," she said.

At least a dozen people were killed and many more injured in her block, but nobody was sure of the overall toll. Hours later smoke was still pouring from the charred windows of the apartments, with fires sporadically breaking out. Every door had been blown off its hinges and every window smashed. A smoke-grimed fireman hacked at the locked metal door of one apartment with an axe. The owner had just returned from Tbilisi, and was terrified that relatives might be inside. On the top floor the smell of burning was so acrid that it was impossible to breathe. The only recognisable object in one apartment was a charred saucepan.

Nobody – except, it seems, Georgia's President Mikheil Saakashvili – could have expected that Russia would let a Georgian assault on South Ossetia go by without a response. It was no surprise that as soon as Georgian forces moved into the troublesome enclave on Friday, Russia responded forcefully. But Moscow's decision to hit back within Georgia itself took Georgians unawares, and Gori, the nearest Georgian city to the de facto border with South Ossetia, bore the brunt. Although most Russian attacks hit military targets, civilians were also killed on the other side of Gori, where a row of houses were demolished while a military school where reservists had been massing stood untouched. Rescuers were digging in the ruins of one two-storey house to find a family of six they believed to be lying beneath.

Local mobile phone networks were down for most of the day, meaning that people had no way of contacting friends. Instead, firemen, soldiers and civilians used their handsets to photograph the damage like stunned tourists. "I can't believe this is happening here," said one of the rescuers with a sigh. "What have we ever done to the Russians?"

But if Gori had suffered, reports from the separatist capital of Tskhinvali, just half an hour's drive away, were horrific. One resident, Lyudmila Ostayeva, said: "I saw bodies lying on the streets, around ruined buildings, in cars. It's impossible to count them now. There is hardly a single building left undamaged." And Sarmat Laliyev insisted: "They are killing civilians, women and children, with heavy artillery and rockets."

Valeria Baskarova, a teacher in the town, said: "There have certainly been a lot of casualties. The street next to ours was hit by firing and we saw bodies being taken away. We are staying inside the house, we have got three young children and they are very frightened." Another local householder, Viktor Marsiyev, a 33-year-old carpenter, said: "I went out and saw burnt tanks with dead bodies. The police said that they were Georgians who had been trying to come into the city. Then we heard planes and what sounded like firing from helicopters. But it is very confusing, and we don't know what's really going on."

Russian journalists reported that 70 per cent of the buildings were in ruins, and estimated a civilian death toll of anything up to 2,000, though the Georgians dismiss Russian figures as grossly exaggerated. Last night both Georgia and Russia were still claiming to be in control of Tskhinvali.

The bloodshed began after a Georgian offensive was launched on Friday to seize South Ossetia, a Russian-dominated enclave which sought to break away from Georgia even before the country became independent in 1991. Many believe President Saakashvili timed the strike to coincide with the Olympics, when the world's attention was distracted. But if he hoped for a small victorious war, it's already clear that he made a monumental miscalculation.

Russian tanks rolled across the border within hours of Friday's move, and yesterday Moscow launched a series of air raids across Georgia, hitting port infrastructure at Poti and military installations across the country, as well as opening a second front by attacking the Kodori Gorge, Georgia's foothold in its other breakaway state of Abkhazia.

The Georgian government began to evacuate ministries and other strategic centres from the capital, Tbilisi, after the strikes. Yesterday evening Mr Saakashvili called for a ceasefire, but an end to the fighting seems impossible without one of the sides stepping down and losing face, which neither is keen to do. Vladimir Putin, having returned from the Olympic opening ceremony in Beijing, last night flew into Vladikavkaz, the capital of Russia's North Ossetia and just a few dozen miles from the conflict zone. Ostensibly he is there to co-ordinate the flow of refugees coming over the Caucasus mountains to Russia, but sceptics will suggest he has flown in to direct the military offensive.

Following a Kremlin meeting with the defence minister and senior officers, the Russian president, Dmitry Medvedev, said yesterday: "Our peacekeepers and units subordinate to them are now carrying out an operation to force the Georgian side to peace." The only way out of the crisis was for Georgia to pull its troops out of South Ossetia, he added. But judging from the scene in central Gori yesterday, that was not on the cards. The city's fleet of bright yellow passenger buses, many incongruously decorated with cheerful adverts, had been commandeered by the military and was ferrying men in fatigues around the town and towards the border with South Ossetia. Despite the call for a ceasefire, it was clear that reservists were being called up and assigned weapons with gusto.

In the past few years the Georgian army has gone from a ramshackle band of underpaid and unmotivated conscripts to something approaching a modern, professional force. It has received vast amounts of US equipment and training, and sent a contingent of 2,000 to Iraq. This weekend Mr Saakashvili announced that the Iraq force was being called back to help the war effort at home.

Two months ago, at a base near the second city of Kutaisi, a brigade of 2,000 soldiers who had returned from running anti-weapons trafficking operations along the Iran-Iraq border showed off their smart uniforms, weapons and English learnt during stays in the United States. They said the training they had received from the Americans would stand them in good stead if they ever needed it at home. "We're ready to fight whenever we get the order," said one lanky young soldier, with just a hint of an American accent. Now that brigade is in Tskhinvali, fighting the Russians.

But desperate times call for desperate measures, and it's clear that many of the men being mobilised right now are not professional soldiers. Everywhere in Gori, reservists mill around wielding their Kalashnikovs.

Aboard one bus full of men, who varied in age from 18 to their mid-50s, the tension was palpable. The men were all dressed in identical combat outfits, and carried knives and Kalashnikovs. Their commander initially refused to talk, but eventually admitted they were on their way to South Ossetia.

"They are reservists and volunteers," he said, refusing to give his name or the size of the convoy they were part of. "We are going to fight."

Despite Mr Saakashvili's claim that the Georgian military manoeuvres were defensive and the Russian claim that it is not fighting Georgia but protecting its peacekeeping force in South Ossetia, there is little doubt that this is a war. Both sides may have resisted all-out confrontation so far, but the Russian bombings and the clashes in Tskhinvali make this qualitatively different from anything that has happened in the region in the past decade.

Gori itself feels like a city at the edge of a war zone. The atmosphere is at once nervous, excited and chaotic. By the central hospital, at least 300 men were gathered, waiting for the signal to head north. Trucks carrying small groups of soldiers or weapons caches tore through the city, either on the way to the front or carrying wounded to the Central Hospital in Gori.

At one point, a defence ministry official came rushing into the square brandishing the charred remains of a map to show to foreign journalists – it was the remains of a military chart found inside the cockpit of a Russian jet that the Georgians had shot down. Georgian television showed pictures of the corpse of a Russian pilot stretched out on a camp bed, his white helmet smeared with blood, and broadcast interviews with Russian pilots who had been captured alive.

The army refused entrance to Gori's hospital to journalists, but the regular traffic coming in and out hinted at the numbers of injured, as did the lengthy lists of names, in the elegant swirly Georgian script, pinned to trees outside and scanned by anxious relatives. With both sides refusing to blink, the lists could soon become much longer.

That South Ossetia has erupted so dramatically has surprised many people. After years of being described as a "frozen conflict", South Ossetia is suddenly red hot. Roza Etseteshvili and the residents of 12 Sukhishvili Street are just a few of the many thousands to be feeling the heat.

Additional reporting by Kim Sengupta in Tbilisi