AN ATR72 FLC LEAVES THEIR ASSIGNED ALT DURING AN APCH TO AVL RWY 34 ILS WHEN RECEIVING A GPWS WARNING. IN DOING SO; THEY INCUR A POTENTIAL CONFLICT WITH AN AIR HOLDING C172.

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WE WERE ASSIGNED 5100 FT MSL; ON A RADAR VECTOR TO AN ILS APCH TO RWY 34 TO ASHEVILLE; NC; REGIONAL. WE WERE ADVISED OF A SKYHAWK HOLDING AT THE BROAD RIVER NDB AT 6100 FT MSL. AROUND FREEZ INTXN WE RECEIVED THE GPWS WARNING; 'TERRAIN; TERRAIN.' KNOWING WHERE WE WERE AND THAT A TWR EXISTED ON TOP OF TERRAIN 4091 FT WE HESITATED DUE TO THE OTHER ACFT HOLDING AND OCCUPYING AIRSPACE WE NEEDED BUT WHEN THE WARNING DIDN'T GO AWAY; RATHER THAN SELECTING MAX PWR; MAX CLB; WE STARTED A GRADUAL CLB; 400-500 FPM; NOTIFIED ATC: 'INITIATING GPWS CLB.' WE THEN RECEIVED A TCASII TA NOT AN RA THAT DID NOT COME AS A SURPRISE. WE WERE IN IMC THE WHOLE TIME. AS SOON AS THE GPWS WARNING EXTINGUISHED; WE RETURNED TO OUR ASSIGNED ALT OF 5100 FT MSL. WE CLBED TO 5500 FT MSL DURING THE CONFLICT. BEING IN IMC; WE COULD NOT SEE THE TERRAIN AND HAD NO CHOICE BUT TO RESPOND TO THE GPWS WARNING. ATC GAVE US A HEADING AFTER WE ADVISED WE WERE CLBING TO AVOID TFC. IF I HAD TO DO IT ALL OVER I WOULD DO NOTHING DIFFERENT. WE ACTED WITH COMMON SENSE AND PER COMPANY PROCS. I FEEL THAT THE SKYHAWK SHOULD HAVE BEEN AT A HIGHER ALT SINCE GPWS WARNINGS ARE COMMON ALONG THAT RTE; AND ITS MISSION APPEARED TO BE TRAINING ONLY WHICH COULD BE CONDUCTED AT A HIGHER ALT. SUPPLEMENTAL INFO FROM ACN 393168: I RECOMMEND HIGHER VECTORING ALT DUE TO TERRAIN AND TWR LOCATED NEAR 'FREEZ' INTXN.