NATO said the 24-hour-long operation in Arghandab was a swift success that banished any threat to Kandahar and would help reassure Afghans appalled at the embarrassing mass escape of Taliban prisoners from a city jail last week.
It was unclear when mopping-up operations in the lush, orchard-strewn valley would be completed, or when hundreds of displaced villagers could return. Afghan officials said militants had planted hundreds of land mines before fleeing.
Taliban spokesman Qari Yousef - who often gives exaggerated information - boasted to CBS News on Tuesday that the militant movement controlled all of Arghandab. He said many of the militants who had moved into region were freed during a massive prison break in Kandahar on Friday.
Some 400 insurgents swept into Arghandab on Monday and seized 10 villages, Afghan officials said. The area is considered a possible launch pad for an attack on Kandahar, the fundamentalist Taliban's capital before U.S.-led forces ousted it in 2001.
NATO played down the threat, but sent 600 British and Canadian troops to support Afghan soldiers, many of them rushed in by air from the capital, Kabul, for a rapid counter-strike.
After 24 hours, Gen. Mohammad Zahir Azimi, spokesman for the Defense Ministry, said the Afghan National Army had taken back the villages, and NATO judged the joint operation "very successful."
"No large formation of insurgents were met or spotted. Only minor incidents occurred," alliance spokesman Maj. Gen. Carlos Branco said. "The insurgents who were there were evidently not in the numbers or with the foothold that they have claimed."
NATO and Afghan officials said ground troops were moving methodically through the area on the east bank of the Arghandab River, wary of bombs and keen to avoid civilian casualties.
Mark Laity, another NATO spokesman, said the alliance launched a "limited number" of airstrikes overnight. He said no NATO troops were hurt and military operations would continue in Arghandab "for a little while yet."
Syed Mohammed, a resident who sent two dozen relatives to Kandahar but stayed behind in the village of Thabien, said gunfights had raged until about 2 a.m.
When he looked out of his gate at dawn Thursday, Afghan soldiers shooed him back inside, but not before he saw about a half-dozen bodies - apparently dead militants - in the back of a truck.
"The soldiers were everywhere, even in my pomegranate orchard," Mohammed told The Associated Press by telephone. "They told me to stay home for my own security and because of the mines."
Earlier in the week, he had seen 30 to 40 militants armed with assault rifles and rockets ride through the village, he said.
Azimi said two Afghan soldiers were killed and two more wounded in the operation. The 56 insurgents killed included several foreign fighters, he said. Kandahar Gov. Asadullah Khalid said one civilian was killed by gunfire.
An Associated Press reporter on the roof of a shrine overlooking the Arghandab River and the contested area saw Afghan and Canadian troops moving in convoys but no sign of combat, or of any villagers returning.
President Hamid Karzai ordered officials to assist several hundred families who fled the area before the fighting, clear any mines and help them return quickly.
Branco said the displaced villagers were staying with friends and relatives in the region and there was "no humanitarian crisis."
Khalid, the governor, claimed that, in all, "hundreds" of militants had been killed or wounded. However, Azimi said many fighters could have slipped away northward under cover of darkness.
Meanwhile, the Taliban announced on a Web site that several suicide bombers had entered Kandahar to attack Canadian and Afghan troops and government officials, according to the SITE Intelligence Group, an organization that monitors militant Web sites.
Branco said police dismantled several bombs in the city Wednesday thanks to tip-offs and the city was "firmly under the control of the Afghan government and its people."
Confidence in that control was badly shaken last Friday when a bold Taliban attack, including two suicide bombings, on the Kandahar prison freed 900 inmates, including 400 Taliban fighters.
Laity said the Taliban were trying to stir panic and that the response in Arghandab should allay the fears of Afghans, many of whom doubt Afghan and NATO forces can defeat the growing insurgency any time soon.
"We know that after recent events like the jailbreak there is concern about our capabilities. This was a fast and very effective response and I think something that all Afghans can take great heart from," he said.
Meanwhile, a French official in Kabul has told CBS News that a French businessman kidnapped by the Taliban in May has been released along with two Afghans. The official, who spoke under condition of anonymity, did not release details of the arrangement.