diff --git a/mercurial/dispatch.py b/mercurial/dispatch.py
--- a/mercurial/dispatch.py
+++ b/mercurial/dispatch.py
@@ -6,7 +6,7 @@
 # GNU General Public License version 2 or any later version.
 
 from i18n import _
-import os, sys, atexit, signal, pdb, socket, errno, shlex, time, traceback
+import os, sys, atexit, signal, pdb, socket, errno, shlex, time, traceback, re
 import util, commands, hg, fancyopts, extensions, hook, error
 import cmdutil, encoding
 import ui as uimod
@@ -214,8 +214,18 @@ class cmdalias(object):
 
         if self.definition.startswith('!'):
             def fn(ui, *args):
-                cmd = '%s %s' % (self.definition[1:], ' '.join(args))
-                return util.system(cmd)
+                env = {'HG_ARGS': ' '.join((self.name,) + args)}
+                def _checkvar(m):
+                    if int(m.groups()[0]) <= len(args):
+                        return m.group()
+                    else:
+                        return ''
+                cmd = re.sub(r'\$(\d+)', _checkvar, self.definition[1:])
+                replace = dict((str(i + 1), arg) for i, arg in enumerate(args))
+                replace['0'] = self.name
+                replace['@'] = ' '.join(args)
+                cmd = util.interpolate(r'\$', replace, cmd)
+                return util.system(cmd, environ=env)
             self.fn = fn
             return
 
@@ -274,7 +284,10 @@ class cmdalias(object):
         if self.shadows:
             ui.debug("alias '%s' shadows command\n" % self.name)
 
-        return util.checksignature(self.fn)(ui, *args, **opts)
+        if self.definition.startswith('!'):
+            return self.fn(ui, *args, **opts)
+        else:
+            return util.checksignature(self.fn)(ui, *args, **opts)
 
 def addaliases(ui, cmdtable):
     # aliases are processed after extensions have been loaded, so they
diff --git a/tests/test-alias.t b/tests/test-alias.t
--- a/tests/test-alias.t
+++ b/tests/test-alias.t
@@ -16,7 +16,13 @@
   > dln = lognull --debug
   > nousage = rollback
   > put = export -r 0 -o "\$FOO/%R.diff"
-  > echo = !echo
+  > blank = !echo
+  > self = !echo '\$0'
+  > echo = !echo '\$@'
+  > echo1 = !echo '\$1'
+  > echo2 = !echo '\$2'
+  > echo13 = !echo '\$1' '\$3'
+  > count = !hg log -r '\$@' --template='.' | wc -c | sed -e 's/ //g'
   > rt = root
   > 
   > [defaults]
@@ -146,10 +152,35 @@ path expanding
   +foo
 
 
-shell aliases
+simple shell aliases
 
+  $ hg blank
+  
+  $ hg blank foo
+  
+  $ hg echo
+  
+  $ hg self
+  self
   $ hg echo foo
   foo
+  $ hg echo 'test $2' foo
+  test $2 foo
+  $ hg echo1 foo bar baz
+  foo
+  $ hg echo2 foo bar baz
+  bar
+  $ hg echo13 foo bar baz test
+  foo baz
+  $ hg echo2 foo
+  
+  $ echo bar > bar
+  $ hg ci -qA -m bar
+  $ hg count .
+  1
+  $ hg count 'branch(default)'
+  2
+
 
 invalid arguments