Pakistani troops have begun street battles with entrenched Taliban forces in Mingora, the main town in northwestern Swat district, an army spokesman said on Saturday.
Major General Athar Abbas said 17 militants, including an important commander named Usman, alias Butcher, have been killed over the last 24 hours in Swat and its adjoining districts.
The army launched its operation in Swat May 8 to eliminate the Taliban and end their rule. The move was prompted when the Taliban refused to honour a peace deal with the government.
"Today (Saturday), the most important phase of operation "Rah-e-Rast", the clearance of Mingora, has commenced," Abbas told reporters in Islamabad.
"It is a difficult operation because we have to make a house-to-house search. We have cleared some of the area in the city," he added.
Capturing Mingora is critical to Pakistan's efforts to regain control over Swat, which is located some 140 km northwest of Islamabad.
Nearly 1.7 million people have been rendered homeless by the recent fighting in Swat and neighbouring areas, according to the UN refugee agency (UNHCR). They come on top of another 500,000 uprooted last year.
The UN Friday appealed to the international community to immediately provide $543 million to help the displaced. So far, more than 1,100 militants and over 60 troops have been killed in the operation.
The military action has the support of all major Pakistani political parties, plus strong backing from the US and other Western countries, many of which have often blamed Pakistan in the past for not doing enough against Taliban terrorists.
But the support at home could fade if the displaced are not properly cared for in a timely manner.
The army also claimed on Saturday that it had achieved substantial gains in Peochar, a side valley where Al Qaeda and Taliban had set-up training camps and a command-and-control system.
Abbas said militants' losses in the conflict have boosted confidence in the armed forces while shattering some of the myths that the Taliban forces were interested in the well-being of the people.
Locals in the area of Peochar voluntarily surrendered weapons which they had been ordered to hold. They also revealed that they had been subjected to forced labour and other atrocities, the spokesman said.