Eritrea, increasingly conciliatory, agreed to surrender two other towns demanded by Ethiopia as a condition to stopping the fighting.
From a peak along the front line, Ethiopian soldiers surveyed newly captured ground strewn with ammunition boxes, torn bodies in uniform and corpses of donkeys that had been herded ahead of the advancing troops to clear minefields.
"I believe the Eritrean army has suffered tremendously. But I do not think they will go the peaceful way," said Col. Mulu Ayenaw, while his men raised Ethiopia's flag over the retaken town of Zalambessa.
"I think we need to defeat them some more," Mulu said.
Algerian President Abdelaziz Bouteflika, chairman of the Organization of African Unity, secured Eritrea's and then Ethiopia's commitment to take part in indirect peace talks set for Monday in Algiers to end the 2-year-old war over the poorly delineated 620 mile border.
Eritrea previously had insisted on a cease-fire for talks.
Bouteflika also secured a written pledge from Eritrean President Isaias Afewerki to withdraw from the eastern towns of Bada and Bure.
Eritrea, while insisting the towns were indisputably part of its territory, said it retreated from Bada and Bure to deny its much larger neighbor any further pretext for fighting.
Eritrea insisted its retreat from the border was no resounding military defeat.
"Eritrea has lost territory but Ethiopia has lost most of the battles," presidential spokesman Yemane Gebremeskel said in Asmara.
Gebremeskel estimated Ethiopia had suffered 60,000 casualties since it invaded Eritrea. Eritrean casualties "were not even slightly comparable," he said.
He promised counterattacks to slowly weaken Ethiopian forcesa strategy seemingly more in line with Eritrea's 30-year guerrilla war for independence from then-communist Ethiopia.
"I don't know how it's going to go the next two or three days, but I can tell you that at the end of the day, we are going to push them back," Gebremeskel said.
A previous round of talks in Algiers between the two Horn of Africa nations broke down May 4, leading to Ethiopia's invasion of Eritrea, the latest outbreak of bloodshed. The conflict has cost the lives of tens of thousands of soldiers and civilians from both countries.
After a punishing two-day battle at the central front, Eritrea announced Thursday it was withdrawing from all disputed territory starting with the area around the mountaintop town of Zalambessa.
Jubilant Ethiopian soldiers with AK-47s slung over their shoulders raised their flag at Zalambessa on Friday morning, while artillery boomed at the battle for the 20,000-resident city of Senafe, 7 miles to the north.
Ethiopia announced later Friday it had taken Senafe, seizing a community where just twdays earlier Eritreans had cheered their country's soldiers.
On Friday, it was Ethiopian trucks rushing past with fresh troops for a front moving farther north into Eritrea.
Eritrea said Ethiopia had also taken two other towns in the area, Forte and Tsorena, sending 50,000 residents in the area fleeing. The evacuees join what Eritrea says is 550,000 people already displaced in the offensive.
Ethiopia repeatedly has said it will return all undisputed territory at war's end.
U.S. Secretary of State Madeleine Albright, appearing on Fridays CBS News Early Show, addressed concerns the U.S. is neglecting conflicts in Africa, like the civil war in Sierra Leone and the border dispute in the Horn of Africa.
"We have tried hard in a number of ways to help with diplomatic solutions," the Secretary said. "We've been providing lift for other countries to go into the areas."
"So I think we have been doing something," said Albright, although she admitted, "We are not the ones that are taking the lead in these particular cases."