BANGKOK - POLICE warned students on Friday to avoid street protests after a gunman shot and wounded two students demonstrating against Thailand's prime minister raising new fears of violence in the country's tense political crisis.

The attack came after Mr Samak proposed a national referendum on Thursday to decide his political fate, an unconventional compromise that was dismissed by critics as a stalling tactic that will prolong the unrest.

About 100 students were marching to demonstrate outside of Mr Samak's home late Thursday when an unidentified gunman on the back of a motorcycle opened fire on the crowd, said police chief Col Somsak Bunsaeng of the Ladprao station in north-east Bangkok.

One of the students was shot in his left leg, the other in his left arm. Police said they were hospitalised but were not seriously hurt.

Anti-government protesters have occupied Mr Samak's official headquarters, Government House, for 11 days, vowing not to leave until he resigns.

Mr Samak imposed a state of emergency Tuesday after his opponents and supporters clashed near Government House in rioting that left one person dead and dozens wounded.

The decree gives the military the right to restore order, allows authorities to suspend civil liberties and bans public gatherings of more than five people.

Police told students after the shooting that under the state of emergency their Thursday evening protest was not allowed, said police spokesman Surapol Tuantong.

'We explained to the students last night that the city is under the state of emergency - and they understood and dispersed,' Mr Surapol said.

'The situation is very politically charged. Right now, it's not a good idea to gather,' he said. 'There are many parties involved and when something like this happens, it's hard to find the perpetrators.'

Shooting incidents are rare in Bangkok, which was calm on Friday with business going on as usual in most of the city. Anti-government protests have mostly been isolated to the area around Government House.

Mr Samak hopes his proposed referendum will allow him to keep his job while placating the People's Alliance for Democracy, which has vowed to continue its anti-government campaign.

The referendum will ask the public to choose between the alliance and the government, but many analysts say a simple yes-no vote is insufficient in the face of a complicated political crisis.

The alliance ridiculed the plan, saying Mr Samak will manipulate the vote, just as they allege he did during general elections his party won in December 2007.

'The referendum is an attempt by Mr Samak to buy himself some more time in the office,' Mr Sondhi Limthongkul, a media tycoon and one of the protest leaders said.

Before announcing the referendum, which caught the nation by surprise, Mr Samak delivered a combative speech on national radio, again refusing to step down.

'I will not abandon the ship, and I will take responsibility for the crew on board,' Mr Samak said, peppering his speech with folksy language.

'I am not resigning. I have to protect the democracy of this country.' But some have said the referendum could aggravate rather than alleviate the political deadlock.

'A referendum is normally used to test public approval on whether to go to war or pass an important law. It would not be effective as a tool to solve a complicated political crisis with many conditions and layers,' said Prof Panithan Wattanayagorn, a political science professor at Bangkok's Chulalongkorn University.

The alliance is a loosely knit group of royalists, wealthy and middle-class urban residents, and union activists. It wants Parliament to be revamped so most lawmakers are appointed rather than elected, arguing that Thailand's impoverished rural majority is too susceptible to vote buying.

The group has already had a hand in bringing down one government, when it staged demonstrations in 2006 that paved the way for the bloodless coup that removed then Prime Minister Thaksin Shinawatra from office.

The protesters say Mr Samak is Mr Thaksin's stooge and is running the government for him by proxy while the ousted prime minister is in exile in Britain.

The government's failure to resolve the deadlock has also raised fears of an economic downturn, especially in Thailand's crucial tourist industry, which is particularly susceptible to concerns about political instability. -- AP