SAIGON, South Vietnam (AP) Communist ground fire today downed a U.S. AC4u Dragon plane—popularly known as “Puff the Magic Dragon’’—and all seven crewmen aboard were killed, a U.S. spokesman an nounced. In the Mekong Delta, Viet Cong frogmen sank an American dredge, the fourth largest in the world. The twin-engine C47, armed with three six-barrel gatling guns capable of firing 18.00 rounds per minute was brought down 26 miles southwest of Quang Ngai City, near the cen tral coast. It was the second Dragon ship lost in the war. Two U.S. civilians were re ported killed and one was re ported missing aboard the 170- foot dredge, the Jamaica Bay, which sank in 20 feet of water near My Tho, about 35 miles southwest of Saigon. Closer to the capital city Communist guns shelled a Brit ish tanker and two Vietnam navy minesweepers. Only small-scale ground ac tion was reported in the war and the U.S. air offensive against North Vietnam was hampered by very bad flying weather. But from the Mekong Delta 40 miles south of Saigon came word of the slaying of 10 Viet namese_ children and_ the wounding of 16 more when they were used as human shields by Viet Cong advancing against a unit of South Vietnamese Rang ers. A U.S. spokesman said the Communists herded the children and some adult civilians in front of them. Despite warnings from the Rangers, they kept moving forward and fired on the gov ernment troops. The spokesman said the Rangers had no choice but to return the fire. In addition to the 6 children killed or wound ed, nine adults were wounded. The British ship hit by Viet Cong fire was identified as the 12,090-ton Shell tanker Haus trum from London. A U.S. mili tary spokesman said she was hit in the superstructure, fantail’ and bow, the captain was wounded in the arm and leg and a crewman was killed. The captain was taken from his ship but insisted on return ing on board and took the tank er under her own power to Nha Be, the oil depot near Saigon. Less than a mile from the at tack on the tanker in the Long Tau River, two South Vietnam ese minesweepers also came under fire from Viet Cong 57mm. recoilless rifles. A Vietnamese spokesman said one minesweeper took heavy damage but had only light casu alties while the other mine Continued on Page Two)