there can be 2-, 3- or 4-bit errors that come with the same parity bits as that of 1-bit errors.
When detecting or correcting an error, the entire 7 bit code word is used, not just the 3 parity bits, so it doesn't matter if different error patterns produce the same 3 parity bits, because the other 4 bits will be different.
the message transmitted is 0110011 and the message received is 1000011.
That's a 3 bit error (the first 3 bits are toggled), and in this case, Hamming code will fail to detect an error, and assume the data is 0011 (instead of 1011).
How does the algorithm handle this?
It doesn't. If using (7,4) Hamming code for error detection, it's only guaranteed to detect a 1 or 2 bit error, and it will detect most but not all 3 or more bit errors. If using Hamming code for error correction, it can only correct a 1 bit error.
A single bit error correction will always produce a code word that appears to have zero errors, but if there was more than 1 bit in error and a single bit correction is done, the single bit correction results in at least 3 bits in error. For example assume 0000011 is received, and it's a 2 bit error that should have been 0000000. A single bit error correction will produce 1000011, resulting in a 3 bit error that appears to have zero errors.
Wiki article:
http://en.wikipedia.org/wiki/Hamming(7,4)
There are 128 possible 7 bit code words. 242
16 of these are valid code words that appear to have zero errors. The remaining 112 code words have at least 1 bit in error, and as mentioned in the wiki article, (7,4) Hamming code cannot distinguish between single-bit errors and two-bit errors, and fails to detect some patterns with 3 or more bits in error when they map into a valid code word.
The 16 valid code words that appear to have zero errors, in code word order:
data codeword
0000 0000000
0111 0001111
1110 0010110
1001 0011001
0101 0100101
0010 0101010
1011 0110011
1100 0111100
0011 1000011
0100 1001100
1101 1010101
1010 1011010
0110 1100110
0001 1101001
1000 1110000
1111 1111111
In this set of 16 valid code words, 1 has zero bits set, 1 has all seven bits set, 7 have three bits set and 7 have four bits set. In the set of 112 invalid code words, 7 have one bit set, 7 have 6 bits set, 21 have 2 bits set, 21 have 5 bits set, 28 have three bits set, and 28 have four bits set. Note that at least 3 bits have to be toggled to convert from one of the 16 valid code words to another valid code word, this is referred to as the minimum distance which in this case is 3. This is why (7,4) Hamming code can detect 2 bit errors, because no 2 bit error can result in a valid code word. 242