Shell craters and dead branches torn off the trees by explosions mark the places in the mountains of northern Iraq targeted by Iranian artillery firing across the border in a serious escalation of the confrontation between Iran and the US.

Frightened villagers, whose farms cling to the sides of the deep valleys below Kandil mountain, ran for their lives as Iran opened fire on Iraqi territory for the first time since the US invasion in 2003. Local officials said about 2,000 shells were fired in four hours.

"I was woken up by the sound of the shelling in the middle of the night and I saw there was fire everywhere," said Meri Hamza Farqa, an elderly Kurdish woman from Shinawa village.

"The children and I ran out of the house and scattered in different directions. A shell blew up near me and I was hit by mud and stones. Later I saw blood coming from my arm."

The old saying of the Kurds that they "have no friends but the mountains" is truest here among the towering peaks along on the frontier with Iran. For the first time in their tragic history the Kurds believe they are close to being recognised as a nation within Iraq but they fear that their powerful neighbours - Iran, Syria and Turkey - will snatch away their victory at the last moment.

A natural fortress without paved roads, the Kandil region can only be entered by moving along rough tracks cut into the sides of ravines, and by using fords to cross rivers where the water is two feet deep. For several years the area has been controlled by heavily armed Kurdish guerrillas from the Turkish Kurd PKK movement, which conducts operations across the border in Iran.

The Kurdish farmers, herding their sheep and cattle and living in almost total isolation, find it unfair that they should be among the first victims of Iranian-American rivalry.

Asked why the shelling had taken place, Saida Sirt, the commander of the PKK guerrillas in Kandil, said: "The Iranians wanted to send a warning to the Americans, the Kurdish parties and ourselves."

Scattered in their mountain bases, the guerrillas are almost immune to artillery fire and Katyusha rockets. But after the latest bombardment - on 1 May - the villagers had no alternative except to run away. "As soon as the shelling was over we decided to leave," said Meri Hamzaa, a 50-year-old woman with a black headscarf. "When we got back, all my hens and two of my goats had died of hunger."

On the other side of the valley in the village of Razgay Saju, local people had also been asleep in their flat- roofed houses when the shelling started. "Everybody looked for a place to hide," said Base Pirot Ibrahim. "The children started to shout and cry and tried to shelter in the house but we thought it might be targeted so we took them outside. I've never been so frightened in my life."

It is not as if the people of the Kandil are not used to war. One of Meri Hamza's sons was killed in a civil war between two Kurdish parties in the 1990s. Base Pirot said she had had to flee her village three times under Saddam Hussein when its people were ordered out at gunpoint and the houses destroyed.

The attitude of the Iraqi Kurds to the Turkish Kurd guerrillas of the PKK is ambivalent. After their defeat in Turkey, the PKK declared a ceasefire in 1999 and 5,000 of them fled into Iraqi Kurdistan, where they took refuge in easily defended mountain regions such as Kandil. Villagers objected to them cutting down oak trees for firewood in winter, and now they use kerosene for heating and cooking. They also levy a "tax" of one sheep or goat from each family every year. The farmers do not like this, but agree that the loss of a single animal is not much of a burden.

The local guerrillas are elusive. "When you see one, there are another 15 or 20 hidden near by," said Azad Wisu Hassan, the mayor of Sangaser village, close to Kandil. But in the middle of a grassy plain surrounded by mountains, the PKK fighters have built an elaborate and beautiful military cemetery, with a soaring white pillar in the middle.

There is a fountain, red and white rose bushes covered in flowers, decorative trees and the marble tombs of dead guerrillas, mostly young men. It is an extraordinary monument to find in this lonely place. Most of the walls are white but others are painted in the red and yellow colours of the PKK. At one side of the cemetery is a gateway with a sign reading: "The garden of flowers for martyrs." At the other end is a hall of remembrance with a picture of the PKK leader Abdullah Ocalan, who is imprisoned in Turkey.

We met Saida Sirt, a dapper man of 35 in Kurdish military uniform carrying a bamboo swagger stick, at the cemetery. He said that he considered all of Kurdistan his home whether he was living among the Kurds of Turkey, Iraq, Syria or Iran. Currently he was leading the Iranian section of the PKK, and in response to the bombardment he would send more fighters into Iran.

Commander Sirt saw the shelling of Kandil, probably rightly, as part of the complicated game being played between the US, Turkey, Iraq, Iran and the Kurds. He was not sure if there would be another attack by Iran or anyone else, but whatever happened he said he would defend his mountain fortress to the last.