The fighting in Ain al-Hilweh near Lebanon's southern port city of Sidon has pitted members of Palestinian president Mahmud Abbas's Fatah movement against hardline Islamist groups.
Even as factions declared a ceasefire from the Palestinian embassy in Beirut, plumes of smoke could be seen rising from the camp on Tuesday, AFP's correspondent said.
The sharp crackle of gunfire was partly drowned out by the Muslim call to prayer from nearby mosques in Sidon, where hundreds of people displaced from the clashes had sought refuge.
"We also treated four people including a young boy who was hit by a stray bullet and who is in critical condition," the source added.
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Intermittent fighting broke out on Thursday after Fatah pulled out of a joint committee that maintained security in Ain al-Hilweh, but the violence later intensified, AFP's correspondent said.
Palestinian factions meeting at their embassy in Beirut today announced that they had agreed on a ceasefire to end the fighting.
According to Lebanon's National News Agency, the groups said they would re-establish the joint security apparatus.
In recent years, tensions have risen between Fatah and the Jund al-Sham Islamist group in the camp.
The UN's Palestinian refugee agency said today it had halted all services in the camp for the second day because of the unrest.
"Due to the violent clashes that erupted in Ain al-Hilweh and taking into consideration security considerations, all UNRWA services were suspended yesterday and today," the agency's statement said.
Ain al-Hilweh is an impoverished, overcrowded camp near the coastal city of Sidon, and is home to some 61,000 Palestinians, including 6,000 who have fled the war in Syria.