(Updates to end fighting)
By Sheikh Mushtaq
SRINAGAR, India, Jan 7 (Reuters) - Soldiers shot dead two separatist militants holed up in a hotel in Indian Kashmir on Thursday after an almost two-day gunbattle that forced a mass rescue operation of residents, police said.
The armed militants forced their way into the five-storey hotel in Srinagar on Wednesday, killing a policeman in one of the biggest attacks in two years in Kashmir's summer capital. A second man died of injuries in hospital.
The two rebels fought for about 22 hours, firing from automatic rifles and lobbing grenades before soldiers shot them down after a room-to-room search operation.
Jamait-ul-Mujahideen, an Islamist militant group which wants Kashmir to be merged with Pakistan, claimed responsibility for the attack and vowed to inflict heavy damage on security forces.
"One of the militants was a Pakistani national," Kuldeep Khuda, chief of Kashmir police, told reporters.
Police said some 400 people had to be rescued from nearby buildings and the hotel which the militants tried to set on fire.
Kashmir is the core dispute between Pakistan and India and the cause of two of their three wars since their independence from British rule in 1947.
After a period of relative calm, militants have stepped up attacks across India-controlled Kashmir, where officials say tens of thousands have been killed since 1989.
But Pakistan's portion of divided Kashmir, long free of Islamist militant violence, has seen several attacks over the past year. A suicide bomber killed three soldiers at a military school in Pakistani Kashmir on Wednesday. (Editing by Krittivas Mukherjee and Sugita Katyal)