"We have a plan to pass full responsibility to the Afghan authorities by 2011, (and) this is a setback in that regard," Harper told a news conference in Huntsville, Ont., north of Toronto.

"The good news is the Afghan government has responded very quickly and very directly to this particular challenge."

While Canadian Forces soldiers have "overarching responsibility" for security in Kandahar, Harper said Sarposa prison is an Afghan government institution.

Still, he acknowledged the bombing that set an estimated 1,200 prisoners free is likely to affect Canadian operations.

"That's why we are working carefully with the Afghan government to address the consequences of this, and obviously to deal with reconstruction of the prison," he said.

"I don't want to minimize this to say this is a serious security situation. It's a setback ... Afghan forces have been working carefully with Canadian Forces - and quite well with Canadian Forces - over the past few days to deal with some of the security consequences of that prison break."

The attack touched off a frenzy of activity in recent days that included a militant strike on numerous villages just outside Kandahar city.

Taliban rebels destroyed bridges, planted bombs and laid claim to villages along the Arghandab river, northwest of the city.

Authorities imposed a 10 p.m. curfew on vehicle traffic days after the attack and established security checkpoints around the city.

Kandahar Gov. Asadullah Khalid expressed hope Thursday that calm could soon return to the region after reports that coalition forces had killed or injured hundreds of insurgents during the latest round of conflict.

Canada's top soldier in Afghanistan said the area was still dangerous, even though there were only pockets of resistance left in the river valley next to Kandahar city.

"They're here in small numbers," Brig. Gen. Denis Thompson told a news conference in the mountains above a river where heavy fire had been exchanged the day before.

"They've been defeated for the most part. . . They're trying to escape."

Despite slowing down the insurgents' momentum, Thompson said soldiers have been through similar scenarios in the past and even if rebels are pushed away they could soon return.

Meanwhile, Khalid is eager for the thousands who fled their homes to return. It's the middle of fruit-harvest season and if they allow their crops to wither, they could face financial ruin.

Thompson said the key now is to help Afghan police keep a presence in the area, make people feel safe, and help them quickly build local projects that have a positive impact in their lives.

Until the police can guarantee people's safety, he said residents should not return to their villages. Afghan officials said they expected people back in their homes within three days.