MOSCOW—Advances on the battlefield by Azerbaijan in its conflict with Armenia over the disputed territory of Nagorno Karabakh shattered hopes this week for an end to the fighting and the forging of a diplomatic settlement.

On Friday, Azeri rockets and artillery shells hit Nagorno-Karabakh’s regional capital of Stepanakert, killing three people, local authorities said, and Azeri forces were fast closing in on Shusha, the enclave’s second-largest town less than 10 miles away. Several other nearby Armenian settlements had already fallen to Azerbaijan and communications between Armenian military units and their command had severed in some places, according to Azeri military officials.

Azerbaijan’s territorial gains marked a pivotal juncture in the conflict between the two former Soviet republics now in its sixth week, analysts said.

“It’s the most important moment now in the military conflict because today battles are taking place in the depths of Karabakh, for the most important settlements, for the most important cities,” said Zaur Mammadov, chairman of the Baku Club of Political Scientists, a think tank in the Azeri capital. “The continuation of the military conflict and hostilities depends on the result” of these battles.

The most recent flare up of fighting that began on Sept. 27 is the latest chapter in a dispute that has consumed the two nations for almost three decades. Populated and controlled by ethnic Armenians, Nagorno Karabakh is internationally recognized as a part of Azerbaijan.

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