IT had been a city slowly beginning to regain its confidence after the unthinkable horrors of September 11.

But last night, New York was plunged back into fear, disbelief and despair after a passenger jet with more than 250 people on board crashed into a residential area of the city.

The nightmare scenario that terrorists had struck again appeared to be fading last night as the signs pointed to the latest disaster being a catastrophic mechanical failure.

The American Airlines' Airbus A300 went down in the borough of Queens - about 15 miles from the scene of devastation caused by the September 11 suicide hijackings in Manhattan.

One of the General Electric engines fell from the 1988-built plane before it crashed, said witnesses.

A US Government official said it was still not clear whether terrorism had caused the crash or not, but that no credible threat had been received before the plane - bound for the Dominican Republic - had taken off.

The crash, at 2.15pm UK time, caused about a dozen buildings to catch fire. New York's three commercial airports were closed, causing some US-bound UK aircraft to turn back or be diverted.

New York Mayor Rudolph Giuliani said: "The first thing that went through my mind was, 'Oh my God'."

Tony Blair heard news of the crash as he met Indian Prime Minister Atal Bihari Vajpayee at Downing Street.

He said his thoughts and prayers were with the families of the victims and with the American people.

Horrified witnesses told of the right-side engine of the plane appearing to blow up and the aircraft going into a nosedive. The plane went down close to a school which, fortunately, was closed as yesterday was a public holiday in the US.

The plane was one of 35 Toulouse-built Airbus A300s in the American Airlines fleet. The airline had still been counting the cost of losing two aircraft in the September 11 terrorist attacks when yesterday's disaster struck.

With 246 passengers and nine crew on board, the plane had just taken off from Kennedy Airport, in New York.

Cinny Kennard, who was waiting for a flight when the plane crashed, said the reaction in the airport was one of "Oh no, not again".

People had rushed to phones and computer terminals to call or e-mail loved ones to tell them they were safe, she said, but added that the atmosphere was "solemn".

Witness Eddie Niedes said he saw an engine on the wing blow up seconds before the plane plunged to the ground.

"It was flying fine with no problems," he said. "It seemed to be on a normal flightpath. Then the engine on the right side blew up and it went straight down into a nosedive. There were flames on the right hand side.

"It was very fast. I don't think the pilot had any choice but to go straight down.

"It was very, very frightening. I was watching the plane from my office all the way along and it blew up right in front of my eyes."

Beverly Browne, from Brooklyn, saw smoke coming from the plane before it crashed.

"The wings were going up and down like it was trying to balance itself.

"It just couldn't seem to stabilise itself. The next thing I knew it had crashed."

Susan Locke, who lives a few blocks away from the crash, said: "I heard a rumble that shook my house. I looked out and saw the plane go straight down."

Mary Blakey, of the National Transportation Safety Board, said a flight data recorder, or black box, from the plane had been recovered.

"All the information we have currently is that this is an accident," she said.

An American Airlines spokesman said last night that the aircraft had had a maintenance check only the day before the crash.