French seal off Mali's Timbuktu, rebels torch library

GAO, Mali (Reuters) - French and Malian troops on Monday sealed off Timbuktu, a UNESCO World Heritage site, after fleeing Islamist rebel fighters torched several buildings in the ancient Saharan trading town, including a priceless manuscript library.

Without a shot being fired to stop them, 1,000 French soldiers including paratroopers and 200 Malian troops seized the airport and surrounded the centuries-old Niger River city, looking to block the escape of al Qaeda-allied fighters.

The retaking of Timbuktu followed the swift capture by French and Malian forces at the weekend of Gao, another major northern Malian town which had also been occupied by the alliance of Islamist militant groups since last year.

A two-week intervention by France in its former Sahel colony, at the request of Mali's government but also with wide international backing, has driven the Islamist rebel fighters northwards out of towns into the desert and mountains.

A French military spokesman said the assault forces at Timbuktu were being careful to avoid combat inside the city so as not to damage cultural treasures and mosques and religious shrines in what is considered a seat of Islamic learning.

But Timbuktu's mayor, Ousmane Halle, reported that fleeing Islamist fighters had torched a South African-funded library in the city containing thousands of priceless manuscripts.

"The rebels set fire to the newly-constructed Ahmed Baba Institute built by the South Africans ... this happened four days ago," Halle Ousmane told Reuters by telephone from Bamako. He said he had received the information from his chief of communications who had travelled south from the city a day ago.

Ousmane was not able to immediately say how much the concrete building had been damaged. He added the rebels also torched his office and the home of a member of parliament.

The Ahmed Baba Institute, one of several libraries and collections in the city containing fragile ancient documents dating back to the 13th century, is named after a Timbuktu-born contemporary of William Shakespeare and houses more than 20,000 scholarly manuscripts. Some were stored in underground vaults.

The French and Malians have faced no resistance so far at Timbuktu, but they face a tough job of combing through the labyrinth of ancient mosques and monuments and mud-brick homes between alleys to flush out any hiding Islamist fighters.

"We have to be extremely careful. But in general terms, the necessary elements are in place to take control," French army spokesman Lieutenant Thierry Burkhard said in Paris.

Timbuktu member of parliament El Hadj Baba Haïdara told Reuters in Bamako the Islamist rebels had abandoned the city. "They all fled. Before their departure they destroyed some buildings, including private homes," he said.

The United States and European Union are backing the French-led Mali operation as a strike against the threat of radical Islamist jihadists using the West African state's inhospitable Sahara desert as a launch pad for international attacks.

They are helping with intelligence, airlift of troops, refueling of planes and logistics, but do not plan to send combat troops to Mali.

FRANCE: MALI "BEING LIBERATED"

"Little by little, Mali is being liberated," French Foreign Minister Laurent Fabius told France 2 television.

At Gao, more than 300 km (190 miles) east of Timbuktu, jubilant residents danced to music in the streets on Sunday to celebrate the liberation of this other ancient Niger River town from the sharia-observing rebels.

A third northern town, the Tuareg seat of Kidal, in Mali's rugged and remote northeast, remains in the hands of the Islamist fighters, a loose alliance that groups AQIM with Malian Islamist group Ansar Dine and AQIM splinter MUJWA.

With its cultural treasures, Timbuktu had previously been a destination for adventurous tourists and international scholars.

The world was shocked by its capture on April 1 by Tuareg desert fighters whose separatist rebellion was later hijacked by Islamist radicals who imposed severe sharia law.

Provoking international outrage, the Islamist militants who follow a more conservative Salafist branch of Islam destroyed dozens of ancient shrines in Timbuktu sacred to moderate Sufi Moslems, condemning them as idolatrous and un-Islamic.

They also applied amputations for thieves and stoning of adulterers under sharia, while forcing women to go veiled.

On Sunday, many women among the thousands of Gao residents who came out to celebrate the rebels' expulsion made a point of going unveiled. Other residents smoked cigarettes and played music to flout the bans previously set by the Islamist rebels.

"THREAT OF TERRORISM"

As the French and Malian troops push into northern Mali, African troops from a U.N.-backed continental intervention force expected to number 7,700 are being flown into the country, despite severe delays due to logistical problems.

Outgoing African Union Chairman President Thomas Boni Yayi of Benin at the weekend scolded AU states for their slow response to assist Mali while former colonial power France took the lead in the military operation.

Yayi put the cost of the African intervention force, now revised upwards, at $1 billion and said up to 10 African countries may be required to send troops.

Burkina Faso, Benin, Nigeria, Senegal, Togo, Niger and Chad are providing soldiers. Burundi and other nations have pledged to contribute.

The AU is expected to seek hundreds of millions of dollars in logistical support and funding for the African Mali force at a conference of donors to be held in Addis Ababa on Tuesday.

Yayi also urged other NATO members and Asian countries to follow France's lead and send troops to Mali. "We have to free the Sahel belt from the threat of terrorism," he said.

(Additional reporting by Richard Valdmanis in Sevare, Mali, Bate Felix in Dakar, Alexandria Sage and Emmanuel Jarry in Paris, Tiemoko Diallo in Bamako, Richard Lough and Aaron Masho in Addis Ababa; Writing by Pascal Fletcher)

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Militants attack oil pipeline in Algeria, two dead

ALGIERS (Reuters) - Suspected Islamist militants attacked an oil pipeline in northern Algeria on Monday, killing two guards and wounding seven other people, a security source told Reuters.

The Djebahia region, some 70 km (45 miles) east of the capital, is a stronghold of Al Qaeda in the Islamic Maghreb (AQIM) which earlier this month killed 37 foreigners at a gas plant in the south, and is where its leader Abdelmalek Droukdel is believed to be based, the source said.

Militant attacks are relatively rare in the north of the country where there is a heavy security presence that pushed most AQIM activities south.

"In comparison to the In Amenas attack, this is a very minor event," the source said, referring to the gas plant attack.

AQIM's leader Droukdel is believed to be somewhere in a triangle of three northern cities: Boumerdes, Bouira and Tizi Ouzou, some 1,600 km (1,000 miles) from In Amenas, and has limited contact with other senior members of the group, the source said.

"The links are almost non-existent, and evidence of that is that there are no Libyan weapons with AQIM's militants in the north," a security source who asked not to be named told Reuters. The In Amenas attackers used arms smuggled across the desert border from Algeria's eastern neighbor.

(Reporting by Lamine Chikhi; Editing by Robin Pomeroy)

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Grief turns to anger after Brazil club fire; band in custody

SANTA MARIA, Brazil (Reuters) - Relatives of the 231 people who died in a Brazilian nightclub fire demanded answers on Monday as to how it could have killed so many people, while police questioned the club's owner and members of the band whose pyrotechnics show allegedly caused the tragedy.

Several coffins, many draped with flags of the victims' favorite soccer teams, lined a gymnasium that has become a makeshift morgue since the fire in the early hours on Sunday, one of the world's deadliest such incidents in a decade.

The death toll was revised down overnight from 233 to 231, as officials said some names had been counted twice.

Eighty-two people remained hospitalized in and around the southern city of Santa Maria. At least 30 of them were in serious condition.

As shell-shocked residents attended a marathon of funerals starting in the pre-dawn hours on Monday, the focus began to shift to what will likely be a barrage of police investigations, lawsuits and recriminations aimed at politicians and others.

"We can't trust in the ability of city hall, or the police, or anybody who permits a party with more a thousand people under these conditions," said Erica Weber, who was accompanying her daughter to a funeral for one of her classmates.

Most of the dead were suffocated by toxic fumes that rapidly filled the Kiss nightclub after the band set off a pyrotechnics display at about 2:30 a.m, witnesses said.

State prosecutor Valeska Agostini told Reuters one of the club's owners and members of the band had been taken into police custody to answer questions although no arrests or criminal charges are likely until after the investigation is completed.

The band's guitarist, Rodrigo Lemos Martins, 32, said he doubted the band was responsible for the blaze. "There were lots of wires (in the ceiling), maybe it was a short circuit," Folha de S.Paulo newspaper quoted him as saying.

The band's accordion player, Danilo Jaques, 30, was among those killed but the other five members survived.

It seems certain others will share the blame for Brazil's second-deadliest fire ever. The use of a flare inside the club was a clear breach of security regulations, fire officials said, and witnesses said bouncers initially tried to prevent people from fleeing from the one functioning exit because they believed they were trying to skip out on their bar tabs.

Clubs and restaurants in Brazil are generally subject to a web of overlapping safety regulations, but enforcement is uneven and owners sometimes pay bribes to continue operating.

The investigation of the Kiss fire could drag on for years. After a similar fire at an Argentine nightclub in 2004 killed 194 people, more than six years passed before a court found members of a band criminally responsible for starting the blaze and causing the deaths.

That tragedy also provoked a massive backlash against politicians and led to the removal of the mayor of Buenos Aires.

Valdeci Oliveira, a legislator in Brazil's Rio Grande do Sul state where the weekend tragedy took place, said on his Twitter feed that he and his colleagues would seek to ban pyrotechnics displays in closed spaces such as nightclubs.

"It won't bring anybody back but we're going to introduce the bill," Oliveira said.

(Additional reporting by Eduardo Simões in São Paulo; Editing by Todd Benson and Bill Trott)

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Violence flares in Egypt after emergency law imposed

CAIRO (Reuters) - A man was shot dead on Monday in a fifth day of violence in Egypt that has killed 50 people and prompted the Islamist president to declare a state of emergency in an attempt to end a wave of unrest sweeping the Arab world's biggest nation.

Emergency rule announced by President Mohamed Mursi on Sunday covers the cities of Port Said, Ismailia and Suez. The army has already been deployed in two of those cities and cabinet approved a measure to let soldiers arrest civilians.

A cabinet source told Reuters any trials would be before civilian courts, but the step is likely to anger protesters who accuse Mursi of using high-handed security tactics of the kind they fought against to oust President Hosni Mubarak.

Egypt's politics have become deeply polarized since those heady days two years ago, when protesters were making most of the running in the Arab Spring revolutions that sent shockwaves through the region and Islamists and liberals lined up together.

Although Islamists have won parliamentary and presidential elections, the disparate opposition has since united against Mursi. Late last year he moved to expand his powers and push a constitution with Islamist leanings through a referendum, punctuated by violent street protests.

Mursi's call for a national dialogue meeting on Monday to help end the crisis was spurned by his main opponents.

They accuse Mursi of hijacking the revolution, listening only to his Islamist allies and breaking a promise to be a president for all Egyptians. Islamists say their rivals want to overthrow by undemocratic means Egypt's first freely elected leader.

Anti-Mursi protesters were out on the streets again in Cairo and elsewhere on Monday, the second anniversary of one of the bloodiest days in the revolution that erupted on January 25, 2011, and ended Mubarak's iron rule 18 days later.

CONCERNS

Hundreds of demonstrators in Port Said, Ismailia and Suez, cities which all lie on the economically vital Suez Canal, had turned out against Mursi's decision on Sunday within moments of him speaking. Activists there pledged to defy a curfew that starts at 9 p.m. (1700 GMT).

Instability in Egypt has raised concerns in Western capitals, where officials worry about the direction of a key regional player that has a peace deal with Israel.

The political unrest has been exacerbated by street violence linked to death penalties imposed on soccer supporters convicted of involvement in stadium rioting a year ago.

In Cairo on Monday, police fired volleys of teargas at stone-throwing protesters near Tahrir Square, cauldron of the anti-Mubarak uprising. A 46-year-old bystander was killed by a gunshot, a security source said. It was not clear who opened fire.

"We want to bring down the regime and end the state that is run by the Muslim Brotherhood," said Ibrahim Eissa, a 26-year-old cook, protecting his face from teargas wafting towards him.

Propelled to the presidency in a June election by the Muslim Brotherhood, Mursi has lurched through a series of political crises and violent demonstrations, complicating his task of shoring up the economy and of preparing for a parliamentary election to cement the new democracy in a few months.

"The protection of the nation is the responsibility of everyone. We will confront any threat to its security with force and firmness within the remit of the law," Mursi said, angering many of his opponents when he wagged his finger at the camera.

The president offered condolences to families of victims of violence and also called a dialogue meeting on Monday at 6 p.m. (11 a.m. ET) between Islamist allies and their liberal, leftist and other opponents to discuss the crisis.

The main opposition National Salvation Front coalition rejected the offer as "cosmetic and not substantive" and set several conditions that have not been met in the past, such as forming a national salvation government. They also demanded that Mursi announce his responsibility for the bloodshed.

SECURITY MEASURES

"We will send a message to the Egyptian people and the president of the republic about what we think are the essentials for dialogue. If he agrees to them, we are ready for dialogue," opposition politician Mohamed ElBaradei told a news conference.

The opposition Front has distanced itself from the latest flare-ups but said Mursi should have acted far sooner to impose security measures that would have ended the violence.

"Of course we feel the president is missing the real problem on the ground, which is his own policies," Front spokesman Khaled Dawoud said after Mursi made his declaration.

Other activists said Mursi's measures to try to impose control on the turbulent streets could backfire.

"Martial law, state of emergency and army arrests of civilians are not a solution to the crisis," Ahmed Maher of the April 6 movement that helped galvanize the 2011 uprising said. "All this will do is further provoke the youth. The solution has to be a political one that addresses the roots of the problem."

Thousands of mourners joined funerals in Port Said for the latest victims in the Mediterranean port city. Seven people were killed there on Sunday when residents joined marches to bury 33 others who had been killed a day earlier, most by gunshot wounds in a city where arms are rife.

Protests erupted there on Saturday after a court sentenced to death several people from the city for their role in deadly soccer violence last year, a verdict residents saw as unfair. The anger swiftly turned against Mursi and his government.

Rights activists said Mursi's declaration was a backward step for Egypt, which was under emergency law for Mubarak's entire 30-year rule. His police used the sweeping arrest provisions to muzzle dissent and round up opponents, including members of the Brotherhood and even Mursi himself.

Heba Morayef of Human Rights Watch in Cairo said the police, still hated by many Egyptians for their heavy-handed tactics under Mubarak, would once again have the right to arrest people "purely because they look suspicious", undermining efforts to create a more efficient and respected police force.

"It is a classic knee-jerk reaction to think the emergency law will help bring security," she said. "It gives so much discretion to the Ministry of Interior that it ends up causing more abuse, which in turn causes more anger."

(Additional reporting by Yasmine Saleh in Cairo and Yusri Mohamed in Ismailia; Editing by Giles Elgood and Peter Millership)

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Suicide bomber kills eight Yemeni troops: officials

SANAA (Reuters) - A suicide bomber killed at least eight Yemeni soldiers on Monday after troops backed by tanks attacked an al Qaeda stronghold following the collapse of talks to free three Western hostages, local officials and residents said.

Tackling lawlessness in the impoverished Arabian Peninsula state, which flanks the world's biggest oil exporter Saudi Arabia, is an international priority. The United States views Yemen as a frontline in its struggle against al Qaeda.

A Finnish couple and an Austrian man, who were studying Arabic in Yemen, were snatched last month by tribesmen in the capital Sanaa. They were later sold to al Qaeda-linked members, and transferred to the southern al-Bayda province, a Yemeni official told Reuters earlier this month.

A government official said the army began its offensive in al Qaeda's al-Manaseh stronghold in al-Bayda early on Monday after the militants rejected demands to release the hostages.

Residents said they saw dozens of tanks and armored vehicles moving at dawn towards al-Manaseh.

"A few hours later, army forces started shelling. We could hear explosions," a man who gave his name only as Abdullah told Reuters by telephone.

In an apparent reprisal for the offensive, a suicide bomber drove a car laden with explosives into an army checkpoint in Radda, a town near al-Manaseh, killing the eight soldiers, local officials said.

The bombing came after suspected militants ambushed and killed three other soldiers near Radda, according to medics. At least 20 other soldiers were wounded in both attacks.

No figures were immediately available on rebel casualties.

The kidnapping of Westerners occurs sporadically in Yemen, mostly by tribesmen seeking bargaining clout in disputes with the authorities or by al Qaeda militants.

Washington and other Western governments regard al Qaeda in the Arabian Peninsula (AQAP), which has planned attacks on international targets including airliners, as one of the most dangerous offshoots of the global militant network founded by Osama bin Laden.

There have been dozens of killings of security and military officials by suspected al Qaeda gunmen in the past year, suggesting AQAP remains resilient despite increased U.S. drone strikes and an onslaught by government forces.

(Reporting by Mohammed Ghobari; Writing by Mahmoud Habboush and Rania El Gamal; Editing by Sami Aboudi and Pravin Char)

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Bangladesh, India sign extradition and visa deals

DHAKA (Reuters) - Bangladesh and India on Monday signed an extradition treaty and struck a deal to relax business visa restrictions between the neighboring countries.

The extradition treaty could pave the way for Bangladesh to put on trial several crime bosses who crossed the border into India but are still running their gangs by telephone, a senior official at Bangladesh's Home Affairs Ministry told Reuters.

It could also help India bring back fugitive separatists who have fled to Bangladesh including Ulfa leader Anup Chetia.

"We are particularly grateful as the treaty will deal with Indian insurgent groups," Indian Home Minister Sushilkumar Rao Shinde told reporters at a joint press conference.

"Both sides committed to act against elements inimical to both countries," he said.

India has long been pressing for Chetia's deportation. He has been in a Dhaka jail since his arrest in 1997 on charges of entering Bangladesh without valid documents.

The travel agreement between India and Bangladesh will allow business visas to be valid for up to five years instead of the current one year.

"Such an arrangement will help to boost the trade and business of Bangladesh with India," said Mahbubur Rahman, president of the International Chamber of Commerce of Bangladesh.

"If Bangladeshis can travel freely, and the exporters can get their payment freely, then in less than 10 years Bangladesh's exports can be tripled to that country," Rahman said.

(Editing by Pravin Char)

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Dispute over military command holds up Congo peace deal

ADDIS ABABA (Reuters) - African leaders failed on Monday to sign a U.N.-mediated peace deal aimed at ending two decades of conflict in eastern Congo, said a senior Congolese diplomat, who pointed to concerns over who would command a new regional military force.

The agreement was to include the deployment of several thousand extra soldiers to tackle armed militias in the mineral-rich east. The brigade would fight under the banner of the U.N.'s MONUSCO peacekeeping force.

Diplomats at an African Union summit in Ethiopia said the troops would come from the Southern Africa Development Community (SADC), notably Tanzania.

Leaders from the Great Lakes region had originally been expected to sign the deal on Monday morning.

Seraphin Ngwej, a senior diplomatic adviser to Congolese President Joseph Kabila, said SADC members had raised questions over who would command the intervention force - SADC or MONUSCO.

"(SADC) wants assurances the brigade can do what they want it to do," said the diplomatic source who declined to be named.

U.N. Secretary General Ban Ki-moon said he had postponed the signing because of "procedural differences" and stressed there were no fundamental differences on the agreement's content between the eight regional states involved.

A fresh rebellion launched last year in Congo's east, a region where ethnic tensions and vast mineral deposits have fuelled a series of cross-border wars - raised fears of another conflict in the borderlands zone.

BOLSTERING PEACEKEEPER MANDATE

The M23 rebel movement swept across Congo's North Kivu province and in November seized the provincial capital of Goma, a city of 1 million people. The rebels later left the city to pave the way for peace talks.

The group is named after a March 23, 2009 peace deal that integrated Tutsi-dominated rebels into Congo's army, but which they say the government violated. The rebels are now also demanding wide-ranging political reforms. ž

MONUSCO was widely criticized for failing to halt the rebels' southern advance on Goma. The force said its helicopters had fired hundreds of rockets but were unable to beat back the swelling ranks of the rebels as government forces fled.

However, U.N. chief Ban said any perception that the peacekeepers had failed was misinformed. The peacekeepers had a strict mandate, and responsibility for security lay first and foremost with the Congolese government and its army.

Nevertheless, he said, "We are now looking at a different approach, how we can strengthen the capacity of MONUSCO."

U.N. officials say the new intervention brigade's mandate would be more robust than MONUSCO's.

Regional tensions escalated last year when a U.N. group of experts reported Rwanda and Uganda were both supporting the M23 rebellion. Both countries have denied involvement.

A second diplomat said the obstacles blocking the Congo peace deal were broader than just the intervention force. He gave no further details.

Separate peace talks between the Kinshasa government and M23 rebels hosted by Uganda have stalled.

Diplomats at the AU summit said it was unclear whether the delays to the deal would hold up a recommendation by Ban to the U.N. Security Council that the new force be deployed.

Ngwej said that under the proposed regional agreement the Kinshasa government would commit to security sector reforms, including the army.

(Writing by Richard Lough; Editing by Louise Ireland and Drazen Jorgic)

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Jailings may have spurred Turkish commander to quit

ANKARA (Reuters) - Turkey's number-two naval commander retired on Monday in what some took as proof of deepening frustration in the military high command over the jailing of hundreds of their colleagues.

Prime Minister Tayyip Erdogan's administration has detained several hundred serving and retired officers over the past few years, including one fifth of Turkey's military generals, on charges of conspiring to overthrow the government.

Vatan newspaper quoted Admiral Nusret Guner, who was operational commander of the navy, as saying: "Our friends are being imprisoned one by one and we are not able to do anything; in fact, we are even helping them to be jailed".

During his 10 years in power, Erdogan has brought the once-supreme armed forces to heel with reforms designed to stop them interfering in politics.

More than 300 past and present officers were convicted and handed lengthy prison sentences last September for plotting to topple Erdogan's administration almost a decade ago.

Newspapers reported over the past week that Guner, who is in his early sixties, had tried to resign after the convictions.

Daily paper Sozcu, a fierce critic of Erdogan's government, quoted Guner's wife on Friday as saying he had met Erdogan previously on the issue and traveled to Ankara last week for more meetings, handing in his resignation letter on Wednesday.

Turkey's military rarely talks to the media and Reuters could not independently verify the reports.

In a statement on Monday confirming Guner's departure, the military general staff did not give a reason for the decision. "The retirement request of our navy commander which has appeared in media outlets in recent days has been accepted," it said.

PRE-TRIAL DETENTIONS

Erdogan, whose ruling party has moderate Islamist roots, has received praise at home and abroad for bringing the military, which sees itself as the guardian of secularism, under civilian control.

The years that defendants have spent in prison without conviction, however, have raised fears that the conspiracy trials are a political witch hunt aimed at silencing opposition.

Around 100 journalists are also in prison, as well as thousands of activists, lawyers, politicians and others. Most are accused of plotting against the government or supporting outlawed Kurdish militants.

As public support for the investigations dwindles, with critics and even sympathizers saying the number of military officers charged with sedition has spiraled out of control, Erdogan has moved to distance himself from the trials.

On Friday he criticized the lengthy pre-trial detentions, suggesting they were sapping the army's morale and affecting its ability to fight a Kurdish insurgency.

Last July, parliament voted to abolish special courts used in coup conspiracy cases after Erdogan criticized prosecutors for acting as if they were "a different power within the state".

But the end of the special courts, established by Erdogan's government in 2005, will not affect existing prosecutions of the hundreds of military officers already in jail.

The most defining moment that underlined Erdogan's grip over the armed forces came in July 2011, when the chief of general staff and his top three commanders quit in protest at the detention of 250 officers on conspiracy charges.

The country's top military officer was then replaced with a general seen as less outspoken and who has largely stayed out of the public eye. Guner was expected to have taken over the top naval role this August when the current admiral steps down.

Media have reported there are now no admirals in the navy to take over the top role, meaning another officer would need to be promoted by August 30 when the commander of naval forces retires.

(Editing by Tom Pfeiffer)

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In flowery letter from sickbed, Venezuela's Chavez calls for regional unity

SANTIAGO (Reuters) - Hugo Chavez, Venezuela's cancer-stricken president, made his presence felt at a regional summit on Monday with a flowery letter from his sickbed in Cuba that was laced with literary references and calls for Latin American unity.

Chavez has not been seen in public since cancer surgery in Cuba in mid-December, missing his own inauguration for a new six-year term this month and fueling uncertainty over the illness jeopardizing his 14-year rule.

Vice President Nicolas Maduro, a former bus driver who Chavez has named as his preferred successor, read the 15-minute long, typed letter to heads of state gathered in Chile.

"I'm sorry I can't attend this meeting in Santiago de Chile, but as you all know, since December I've been battling once again for my health," read the letter, which was sprinkled with quotes from well-known Latin American writers including Chilean poet Pablo Neruda.

The absence of the loquacious leader was conspicuous at the CELAC-European Union summit in Chile, as many foreign leaders and diplomats fret about the stability of the OPEC nation.

Chavez's fiery leftist rhetoric often made headlines at regional gatherings. Five years ago at another summit in Chile, Spain's king famously told Chavez to "shut up."

The socialist president was a driving force behind the creation of the CELAC, or Community of Latin American and Caribbean States, which was established in 2011 in a drive to increase regional integration and counter U.S. influence in the hemisphere.

In Monday's letter, he called for even closer unity.

"Now more than ever, we can say that we have truly followed in the footsteps of our liberators."

(Reporting by Helen Popper and Alejandro Lifschitz; editing by Philip Barbara)

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Iran sends monkey into space, showing missile progress

DUBAI (Reuters) - Iran said on Monday it had launched a live monkey into space, seeking to show off missile delivery systems that are alarming the West which fears the technology could be used to deliver a nuclear warhead.

The Defense Ministry announced the launch as world powers sought to agree a date and venue with Iran for resuming talks to resolve a standoff with the West over Tehran's nuclear program before it degenerates into a new Middle East war.

Efforts to nail down a new meeting have failed repeatedly and the powers fear Iran is exploiting the diplomatic vacuum to hone the means to produce nuclear weapons.

The Islamic Republic denies seeking weapons capability and says it seeks only electricity from its uranium enrichment so it can export more of its considerable oil wealth.

The powers have proposed new talks in February, a spokesman for the European Union's foreign policy chief said on Monday, hours after Russia urged all concerned to "stop behaving like children" and commit to a meeting.

Iran earlier in the day denied media reports of a major explosion at one of its most sensitive, underground enrichment plants, describing them as Western propaganda designed to influence the nuclear talks.

The Defense Ministry said the space launch of the monkey coincided "with the days of" the Prophet Mohammad's birthday, which was last week, but gave no date, according to a statement carried by the official news agency IRNA.

The launch was "another giant step" in space technology and biological research "which is the monopoly of a few countries", the statement said.

The small grey monkey was pictured strapped into a padded seat and being loaded into the Kavoshgar rocket dubbed "Pishgam" (Pioneer) which on state media said reached a height of more than 120 km (75 miles), IRNA said.

"This shipment returned safely to Earth with the anticipated speed along with the live organism," Defense Minister Ahmad Vahidi told the semi-official Fars news agency. "The launch of Kavoshgar and its retrieval is the first step towards sending humans into space in the next phase."

There was no independent confirmation of the launch.

SIGNIFICANT

The West worries that long-range ballistic technology used to propel Iranian satellites into orbit could be put to use delivering nuclear warheads.

Bruno Gruselle of France's Foundation for Strategic Research said that if the monkey launch report were true it would suggest a "quite significant" engineering feat by Iran.

"If you can show that you are able to protect a vehicle of this sort from re-entry, then you can probably protect a military warhead and make it survive the high temperatures and high pressures of re-entering," Gruselle said.

The monkey launch would be similar to sending up a satellite weighing some 2,000 kg (4,400 pounds), he said. Success would suggest a capacity to deploy a surface-to-surface missile with a range of a few thousand kilometers (miles).

But Michael Elleman, a missile expert at the International Institute for Strategic Studies think-tank, said Iran had demonstrated "no new military or strategic capability" with the launch.

"Nonetheless, Iran has an ambitious space exploration program that includes the goal of placing a human in space in the next five or so years and a human-inhabited orbital capsule by the end of the decade," Elleman said. "Today's achievement is one step toward the goal, albeit a small one."

The Islamic Republic announced plans in 2011 to send a monkey into space, but that attempt was reported to have failed.

Nuclear-weapons capability requires three components - enough fissile material such as highly enriched uranium, a reliable weapons device miniaturized to fit into a missile cone, and an effective delivery system, such as a ballistic missile that can grow out of a space launch program.

Iran's efforts to develop and test ballistic missiles and build a space launch capability have contributed to Israeli calls for pre-emptive strikes on Iranian nuclear sites and billions of dollars of U.S. ballistic missile defense spending.

MANOEUVRING OVER NEXT TALKS

A spokesman for EU foreign policy chief Catherine Ashton said the powers had offered a February meeting to Iran, after a proposal to meet at the end of January was refused.

"Iran did not accept our offer to go to Istanbul on January 28 and 29 and so we have offered new dates in February. We have continued to offer dates since December. We are disappointed the Iranians have not yet agreed," Michael Mann reporters.

He said Iranian negotiators had imposed new conditions for resuming talks and that EU powers were concerned this might be a stalling tactic. The last in a sporadic series of fruitless talks was held last June.

Iranian officials deny blame for the delays and say Western countries squandered opportunities for meetings by waiting until after the U.S. presidential election in November.

"We have always said that we are ready to negotiate until a result is reached and we have never broken off discussions," IRNA quoted Iranian Foreign Minister Ali Akbar Salehi as saying.

Salehi has suggested holding the next round in Cairo but said the powers wanted another venue. He also said that Sweden, Kazakhstan and Switzerland had offered to host the talks.

In Moscow, Russian Foreign Minister Sergei Lavrov told a news conference: "We are ready to meet at any location as soon as possible. We believe the essence of our talks is far more important (than the site), and we hope that common sense will prevail and we will stop behaving like little children."

Ashton is overseeing diplomatic contacts on behalf of the powers hoping to persuade Tehran to stop higher-grade uranium enrichment and accept stricter U.N. inspections in return for civilian nuclear cooperation and relief from U.N. sanctions.

IRAN DENIES FORDOW BLAST

Reuters has been unable to verify reports since Friday of an explosion early last week at the underground Fordow bunker that some Israeli and Western media said wrought heavy damage.

"The false news of an explosion at Fordow is Western propaganda ahead of nuclear negotiations to influence their process and outcome," IRNA quoted deputy Iranian nuclear energy agency chief Saeed Shamseddin Bar Broudi as saying.

In late 2011 the plant at Fordow began producing uranium enriched to 20 percent fissile purity, well above the 3.5 percent level normally needed for nuclear power stations.

Western governments say the higher-grade enrichment marks a notable step towards weapons-grade uranium, even though it is below the 90 percent level suitable for nuclear bombs.

Iran says its enhanced enrichment is to make fuel for a Tehran research reactor that produces isotopes for medical care.

Diplomats in Vienna, where the U.N. nuclear watchdog agency is based, said on Monday they had no knowledge of any incident at Fordow but were looking into the reports. One Western diplomat said he did not believe them to be correct.

The U.N. International Atomic Energy Agency, which regularly inspects Iranian nuclear sites including Fordow, had no immediate comment.

Iran has accused Israel and the United States of trying to sabotage its nuclear program with cyber attacks and assassinations of its nuclear scientists. Washington has denied any role in the killings while Israel has declined to comment.

(Additional reporting by William Maclean and Marcus George in Dubai, Justyna Pawlak in Brussels, Fredrik Dahl in Vienna; Writing by Mark Heinrich; Editing by Robin Pomeroy and Jon Hemming)

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Coordinated Kabul suicide attack targets government building

KABUL (Reuters) - Suicide bombers and gunmen launched an eight-hour assault on the headquarters of the Kabul traffic police on Monday, Afghan officials said, in the second coordinated attack on a government building in less than a week.

The Taliban claimed responsibility for the operation In which all five attackers and three traffic police officers were killed, interior ministry officials said.

The attack raised the possibility that insurgents were shifting tactics, testing Afghan security forces in Kabul after a series of high-profile attacks on Western targets last year.

Violence across the country has been increasing over the last 12 months, sparking concern about how the 350,000-strong Afghan security forces will be able to manage once foreign troops withdraw by the end of 2014.

Last week, six suicide bombers attacked the National Directorate of Security (NDS), killing two guards. That attack followed December's failed assassination attempt on NDS chief Asadullah Khalid.

"It's very clear that more and more the Afghan security sources are getting into the lead, the more they are targeted by the insurgents," said Brigadier General Gunter Katz, spokesman for the NATO-led International Security Assistance Force (ISAF).

Monday's attack began when three men detonated suicide bombs outside the main entrance and was followed by the two remaining attackers storming the unfortified area, Deputy Interior Minister General Abdul Rahman said.

The pair, armed with automatic rifles, battled security forces outside the building nestled between two police hubs and close to parliament and a road commonly used by Afghan MPs.

Thick smoke rose from the compound and an Afghan Army helicopter hovered above as Afghan forces returned fire with rockets and machine guns.

The two gunmen were eventually killed by security forces, an interior ministry spokesman said.

"Honestly speaking, this type of attack, at the start of the year, indicates the coming months are going to be tough," a government official said, speaking on condition of anonymity.

"The Taliban will want to display their presence and reach with these kinds of attacks in Kabul."

(Writing by Amie Ferris-Rotman and Dylan Welch; Editing by Nick Macfie)

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French troops take town in central Mali as rebels slip away

DIABALY, Mali (Reuters) - French and Malian armored columns rolled into the central Mali town of Diabaly on Monday after the al Qaeda-linked Islamist rebels who seized it a week ago melted into the bush to avoid air strikes.

Diabaly, 350 km (220 miles) north of Mali's dusty riverside capital Bamako, had harbored the main cluster of insurgents south of the frontline towns of Mopti and Sevare.

Residents said some of the rebels had abandoned their flowing robes to blend in with the local population. The charred and twisted wreckage of their pick up trucks littered the sandy streets between mud-brick buildings.

"French and Malian forces have advanced to Diabaly and they will continue their mission of securing the town," the deputy commander of Malian forces in nearby Niono, who gave his name only as Captain Samasa, told Reuters.

The French commander in the region warned of the risk of mines and booby traps in the insurgents' wake. The region around Diabaly has long been a hub for al Qaeda-linked cells believed to have camps in the Ouagadou forest near Mauritania's border.

France has deployed 2,000 ground troops and its war planes pounded rebel columns and bases in Mali for an 11th day on Monday. Its intervention turned back a column of Islamist rebels heading towards Bamako that threatened to topple Mali's government.

France now aims, with international support, to dislodge the Islamists from Mali's vast desert north, an area the size of Texas, before they use it to launch attacks on the West.

CAMPS BOMBED

The Islamist alliance, grouping al Qaeda's North Africa wing AQIM and the home-grown Malian militant groups Ansar Dine and MUJWA, has imposed harsh sharia law in northern Mali, including amputations and the destruction of ancient shrines sacred to moderate Sufi Muslims.

French Defence Minister Jean-Yves Le Drian said on Sunday French Rafale and Mirage planes had bombed Islamist camps and logistics bases around the ancient caravan town of Timbuktu as well as Gao, the largest city of the north. The strikes were aimed at preventing Islamists launching a counter-attack.

A resident of Timbuktu told Reuters by satellite telephone on Monday that scores of pickup trucks carrying Islamist fighters had arrived there since Saturday, as the rebels apparently pulled their forces towards their desert strongholds.

The information could not be independently confirmed.

Islamist militants cited France's intervention in Mali as their reason for attacking a desert gas plant in neighboring Algeria, seizing hundreds of hostages. The death toll reached at least 80 after Algerian troops stormed the complex at the weekend.

Veteran jihadist Mokhtar Belmokhtar claimed responsibility in the name of al Qaeda for the Algeria attack, Mauritanian news website Sahara Media said on Sunday. His Mulathameen Brigade has warned it will carry out further attacks on foreign interests in the region unless the war in Mali stops.

(Additional reporting by Adama Diarra and Tiemoko Diallo; Writing by Richard Valdmanis; Editing by Daniel Flynn and Janet Lawrence)

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Israel's Netanyahu seeks strong finish in election

JERUSALEM (Reuters) - Israeli Prime Minister Benjamin Netanyahu made an election-eve appeal on Monday to wavering supporters to "come home", showing concern over a forecast far-right surge that would keep him in power but weaken him politically.

In the last stretch of a largely lackluster campaign that could produce the most hardline government in Israel's history, Netanyahu has watched high-tech millionaire Naftali Bennett's far-right Jewish Home party chip away at his right-wing Likud's opinion poll lead.

At a final campaign appearance in Jerusalem, Netanyahu voiced confidence his traditional backers would not abandon him, and repeated his stump pledges to keep Israel safe and build Jewish settlements over international opposition.

He has said preventing Iran from developing nuclear weapons would remain his priority. During the campaign, parties have avoided discussing the sensitive question of whether and when to use military force against Iran, which denies seeking atomic arms.

"I have no doubt that many, many people will decide at the last minute to come home to Likud-Yisrael Beitenu," said Netanyahu, who polls predict will still win Tuesday's parliamentary election, albeit by a narrower margin than first forecast.

"I have a good feeling. And at the last minute, I appeal to each and every citizen going to the ballot box: 'Decide for whom you are going to vote - for a divided and weak Israel or for a united and strong Israel and a large governing party?'."

The final opinion polls, on Friday, showed Netanyahu's right-wing Likud, running on a joint list of candidates with former Foreign Minister Avigdor Lieberman's ultranationalist Yisrael Beitenu party, still set to win.

But the surveys indicated his support had dipped to its lowest point so far and forecast that a potential right-wing and religious bloc of parties led by Likud-Yisrael Beitenu would have a slim parliamentary majority of 63 out of 120 seats.

If the polls are correct - and they have been famously inaccurate in several past elections - Likud and Yisrael Beitenu would capture 10 seats fewer than they took in the previous national ballot in 2009.

A relatively weak showing would make Netanyahu, who has pledged during the campaign to pursue settlement building in the occupied West Bank, more susceptible to the demands of potential coalition partners, including Bennett, and religious parties.

And with peace talks with the Palestinians frozen since 2010 over the settlement issue, there would be little incentive for Netanyahu to pursue any new initiatives as head of a staunchly right-wing government, although he would likely come under pressure to do so if he enlists centrist partners.

Bennett, a charismatic former settler leader, advocates annexing parts of the West Bank, territory Israel captured along with East Jerusalem, the Gaza Strip and the Golan Heights, in the 1967 war, a position to the right of Netanyahu's.

Jewish Home has been the surprise start-up party of the election, forecast to win some 14 seats in a third-place finish.

Second place, according to the polls, will go to the center-left Labour Party led by Shelly Yachimovich, a former journalist who has focused on economic and social issues in the campaign and has ruled out joining a Netanyahu-led government.

Although support for center-left parties has edged higher, their leaders failed to present a united front or persuade many Israelis, alarmed by turmoil in neighbouring Arab states, they are ready to take charge of the country.

SURPRISE SURGE

Bennett's surge has been the talking point of the election, but for voters who have cast ballots for Netanyahu in the past, the Jewish Home leader has a familiar pedigree.

Both are former army commandos and speak American-accented English: Netanyahu went to high school and college in the United States, Bennett's parents immigrated from San Francisco. And each has put settlement expansion at the core of his campaign.

Bennett has made no secret of his desire to join a Netanyahu-led coalition, to the point of plastering the country with campaign ads featuring photos of both leaders.

While Netanyahu still advocates creation of a "demilitarised" Palestinian state, an alliance with Jewish Home would steer his government further to right, potentially putting further strain on his relations with U.S. President Barack Obama and deepening Israel's international isolation.

Netanyahu has campaigned largely on security issues, shrugging off as misplaced international opposition to settlement building that most countries view as illegal and which he sees as a Jewish right based on the Bible and history.

A splintered center-left bloc, whose parties hope to win a majority but may also join a Netanyahu-led government, has had trouble finding a joint message in opposition.

Yachimovich, whose Labour party is forecast to win about 18 seats, has focused on high living costs and economic woes, hoping to translate mass social protests from two years ago into an election victory.

Tzipi Livni, a former foreign minister and negotiator with the Palestinians, has promised to work for a regional peace deal. Her Hatnuah party is expected to win fewer than 10 seats.

In the final hours of the campaign, Netanyahu also took new aim at pocketbook issues, after being rocked by figures last week that showed Israel's budget deficit last year was, at 4.2 percent of gross domestic product, double the original estimate.

He announced he would appoint Moshe Kahlon, who as his widely popular communications minister brought down the price of mobile telephone services, to oversee state land allocation - with the aim of lowering housing prices.

Polling stations open at 7 a.m. (0500 GMT) on Tuesday and close at 10 p.m.. Immediately after voting ends, Israeli media release exit polls, with official results due the next morning and party leaders already beginning informal coalition talks.

No one party has ever won a parliamentary majority in Israel, and its president traditionally asks the leader of the biggest bloc to try to form a governing coalition, a process likely to stretch into next month.

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Merkel suffers setback months before federal vote

BERLIN (Reuters) - In an extremely tight German state election that seemed to produce few clearcut winners, there was no question who the biggest loser was - Angela Merkel.

Her Christian Democrats (CDU), led by local star David McAllister, had convinced themselves over the past week that they were on the verge of a come-from-behind victory to keep control of Lower Saxony, a vast agricultural and industrial region that resembles a U.S.-style swing state.

But on Sunday, they came up short, losing the state to the center-left Social Democrats (SPD) and Greens, who together won one more seat in the state assembly than the center-right.

In one fell swoop, the result gives the center-left a majority in the Bundesrat upper house of parliament, meaning the opposition can block major legislation from Merkel's government and initiate laws themselves.

It is a bitter defeat for the 58-year-old chancellor, even if she remains popular and a strong favorite to win a third term in a federal election eight months from now.

"I'm not going to pretend. After all the feelings generated by this election, defeat hurts even more," Merkel told a news conference in Berlin, standing alongside a gloomy-looking McAllister. "We are all sad today. Sad that it didn't work out."

The center-left will keep control of the upper house after the national election in September, even if Merkel's center-right coalition with the liberal Free Democrats (FDP) manages to hold onto power.

In the run-up to the vote, Merkel's room for maneuver will be limited, and the notoriously risk-averse German leader may take a more cautious stance on a range of policy issues, including the euro zone debt crisis.

"Barring some sort of emerging immediate threat to eurozone stability, we see little prospect of any major measures to address the fundamentals of the eurozone crisis being agreed and implemented this side of Germany's federal election," said Alastair Newton of Nomura.

MAC ATTACK

The vote is also a blow to the CDU's brightest new light. McAllister, a 42-year-old with a Scottish father, had ruled Lower Saxony since 2010 and became a protege of the chancellor, declaring on the vote's eve he was glad to be "Merkel's Mac".

There will be hand-wringing in the CDU about McAllister's not-so-subtle hints to supporters before the election that they use one of their two votes to boost the score of the FDP.

To keep power, McAllister needed the CDU's struggling FDP allies to make the 5 percent threshold to win seats in the state assembly. His message resonated with CDU voters, but perhaps stronger than he would have liked: the FDP ended up with a surprisingly strong 9.9 percent, largely thanks to CDU backers.

Its gains appear to have come at the expense of the CDU, which scored 36 percent, down 6.5 points from their last result in Lower Saxony in 2008 and well below the 40 percent-plus that opinion polls had forecast.

"The CDU has now seen very clearly how bad things can go when you campaign for a split vote, as it did for the benefit of the FDP," said Oskar Niedermayer, a political scientist at Berlin's Free University.

Merkel's CDU has now suffered defeats to the SPD and Greens in five states over the past two years, including in their longtime southern stronghold of Baden-Wuerttemberg and in Germany's most populous state, North Rhine-Westphalia.

Of Germany's 16 federal states, only three are now ruled by center-right coalitions like her federal partnership in Berlin.

The string of losses will fuel anxiety about Merkel's ability to leverage her own popularity into votes for her party.

"Frau Merkel is a queen without a country," said senior SPD politician Andrea Nahles.

ROESLER OFFER

The FDP were hailed as the big winners of Sunday's vote, but the result failed to silence internal critics who want to jettison national party leader Philipp Roesler.

At a closed-door FDP leadership meeting on Monday in Berlin, Roesler offered to cede the chairmanship to parliamentary leader Rainer Bruederle, a party source told Reuters. An FDP spokesman later said Roesler would remain as party head, but Bruederle would take charge of the looming federal election campaign.

The SPD will take some satisfaction after seeing their colorless candidate, Hanover Mayor Stefan Weil, oust the popular Merkel ally McAllister. But the narrow victory does not give them the major momentum-boost they had been hoping for.

Instead it highlighted the problems of their own chancellor candidate Peer Steinbrueck, who on Sunday accepted blame for weakening the party in Lower Saxony with a series of gaffes.

The result is unlikely to quiet voices within the SPD who question Steinbrueck's suitability as a challenger to Merkel, even if the party tried to present a united front on Monday.

The only party that came out an undisputed winner from Lower Saxony was the Greens, who with 13.7 percent of the vote scored their best ever result in the state. But without a stronger performance from the SPD, their natural allies, the environmentalist party has little hope of dislodging Merkel.

"It seems very likely that Ms. Merkel will stay in power one way or another," Jennifer McKeown of Capital Economics said. "But the most likely general election outcome at this stage seems to be that the CDU is forced to form another cumbersome grand coalition with the SPD."

(Additional reporting by Stephen Brown and Thorsten Severin; Writing by Noah Barkin; Editing by Peter Graff)

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NATO Patriot missiles arrive in Turkey to counter Syria risks

ISKENDERUN, Turkey (Reuters) - The first of six NATO Patriot missile batteries intended to protect Turkey from a potential Syrian attack arrived by ship from Germany on Monday, drawing a small but noisy protest from nationalist and leftist demonstrators.

Dozens of camouflaged German military vehicles carrying the batteries disembarked at the Mediterranean port of Iskenderun. About 150 Turkish Communist Party supporters fired pink smoke grenades and burned an American flag at a port entrance.

Germany, the Netherlands and the United States are each sending two Patriot missile batteries and up to 400 troops to Turkey after Ankara asked for NATO's help to bolster security along its 900-km (560-mile) border with Syria.

Damascus has called the move "provocative", in part because Turkey's missile request could be seen as a first step toward implementing a no-fly zone over Syrian airspace.

The frontier has become a flashpoint in the 22-month insurgency against President Bashar al-Assad, with Syrian government shells frequently landing inside Turkish territory, drawing a response in kind from Ankara's military.

"This mission is purely defensive," said Polish Army Lieutenant Colonel Dariusz Kacperczyk, NATO spokesman for the Patriot deployment. "It is to deter any possible threat coming from missiles to the Turkish population and territory."

The batteries will be fully operational by the beginning of February and will protect more than 3.5 million people living in the region, he said.

Turkey has been one of Assad's fiercest critics, leading calls for international intervention and providing shelter for more than 150,000 Syrian refugees. Despite wariness over a possibly more complex Turkish involvement in the conflict, there has only been small-scale opposition to the NATO deployment.

"Yankee go home!", "Murderer America, get out of the Middle East!", chanted a crowd of nationalists, some waving Turkish flags, at a later protest in the centre of Iskenderun.

"Iskenderun port will become NATO's grave", said a placard held by one in the hundreds-strong crowd. Riot police, backed by armored water cannon vehicles, looked on from a distance.

GROWING TENSIONS

Iran and Russia, which have supported Syria throughout the uprising, have criticized NATO's decision, saying the Patriot deployment would intensify a conflict that most foreign governments have been reluctant to get sucked into.

Turkey and NATO have strongly denied the Patriot missiles are a precursor to a no-fly zone that Syrian rebels have been requesting to help them hold territory against a government with overwhelming firepower from the air.

Tensions have increased in recent weeks after NATO said it had detected launches of short-range ballistic missiles inside Syria, several of which have landed close to the Turkish border. Turkey has scrambled war planes along the frontier, fanning fears the war could spread and further destabilize the region.

The German Patriot batteries, whose deployment was approved by NATO in early December at Turkey's request, will travel by road convoy from Iskenderun to be deployed around the city of Kahramanmaras, some 100 km (62 miles) from the Syrian border.

The Dutch missiles, which are expected to arrive by ship in Iskenderun on Tuesday, will be stationed further to the west outside the city of Adana, about 120 km from Syria.

The U.S. missile batteries are expected to arrive later this month and will be deployed further to the east in Gaziantep, which is about 60 km from the frontier.

Advance troops as well as equipment from all three NATO countries had already begun arriving by air in preparation but Monday's delivery marks the first of the actual missile batteries to arrive on Turkish soil.

(Writing by Jonathon Burch and Daren Butler; Editing by Louise Ireland and Nick Tattersall)

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Eritrean troops lay siege to information ministry

ADDIS ABABA (Reuters) - Eritrean soldiers with tanks laid siege to the information ministry on Monday and forced state media to call for political prisoners to be freed, a senior intelligence official said.

The renegade soldiers had not gone as far as to call for the overthrow of the government of one of Africa's most secretive states, long at odds with the United States and accused of human rights abuses.

Eritrea has been led by Isaias Afewerki, 66, for some two decades since it broke from bigger neighbor Ethiopia.

Soldiers had forced the director general of state television "to say the Eritrean government should release all political prisoners," the Eritrean intelligence source told Reuters on condition of anonymity.

There was no immediate statement from the Asmara government.

Accusing Eritrea of torture and summary executions last year, the United Nations human rights chief estimated that 5,000-10,000 political prisoners were being held in the country of about 6 million people.

State media went off air after the call for prisoners to be freed, the intelligence official and diplomats in the region said. One Western diplomat in neighboring Ethiopia said other buildings might have been seized by soldiers too.

The gold-producing state, on a strategic strip of mountainous land along the Red Sea coast, is one of the most opaque countries on the continent and restricts access to foreign reporters.

Eritrean opposition activists exiled in neighboring Ethiopia said there was growing dissent within the Eritrean military, especially over economic hardship.

Despite its relatively small population, Eritrea has Africa's second biggest army.

"Economic issues have worsened and have worsened relations between the government and soldiers in the past few weeks and months," one activist told Reuters.

Eritrea broke from Ethiopia in 1991. The two countries fought a 1998-2000 war over a border which remains disputed. Relations between them are perennially strained, with Eritrea denying accusations it backs Ethiopian insurgents.

The United Nations' Security Council imposed an embargo on Eritrea in 2009 over concerns its government was funding and arming al Shabaab rebels in neighboring Somalia - charges Asmara denied.

Diplomatic sources told Reuters Isaias survived an assassination attempt by a disgruntled soldier in 2009.

Eritrea moved to quash speculation last year that Isaias was sick. It showed television pictures of him lambasting the United States for spreading lies about his condition. He has no obvious successor.

Asmara has accused the United States of working behind the scenes to topple Isaias. A U.S. diplomatic cable released by Wikileaks described him in 2009 as an "unhinged dictator".

Gold companies with mines or projects in Eritrea include Sunridge Gold Corp, Nevsun Resources Ltd and Chalice Gold.

(Additional reporting by Tesfa Alem Tekle in Mekele; Writing by Duncan Miriri; Editing by Matthew Tostevin)

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Ex-UN envoy suspects war crimes in Sudan border conflict

JUBA (Reuters) - Aerial bombardment and ground attacks by government forces in Sudan's restive south are targeting civilians as well as armed rebels and may amount to war crimes, a former senior United Nations official said.

Mukesh Kapila was the U.N. head of mission in Sudan in 2003, when rebels in the country's western Darfur region took up arms against the central government. The government mobilized troops and allied militias there to put down the revolt.

Hundreds of thousands died in the ensuing conflict, many of them civilians caught in the fighting or struck down by disease.

Returning to Sudan this month, Kapila said he went on a ten-day tour of rebel-held areas in South Kordofan and Blue Nile border states and found evidence of abuses that amounted to systematic ethnic cleansing.

"What's happened over the last two odd years ... is basically exactly the same tactics as Darfur except in the interim period the technology of war has improved," Kapila told Reuters in an interview.

Sudan's government insists its forces have committed no war crimes but says the rebels have sown chaos in South Kordofan and Blue Nile and are guilty of grave abuses.

Asked to comment on Kapila's findings, Rabie Abdelatie, a senior member of the ruling National Congress Party in Khartoum, said they were "completely incorrect".

"The government's responsibility is to protect civilians," said Abdelatie.

Armed revolts broke out in South Kordofan and Blue Nile around the time neighboring South Sudan declared independence in 2011.

On his 1,000 km (620 mile) tour of the southern regions, Kapila said he saw burned villages and bomb craters far from any fighting. He said government bombing had struck a blow to farming, causing severe food shortages, and hundreds of thousands of civilians had been displaced.

Sudan's government has banned aid deliveries even though it signed an agreement on the aid with the U.N. and the rebels in August. Khartoum said it needed assurances that aid could be delivered before giving the go-ahead.

Kapila said 2.5 million people now had limited or no access to humanitarian assistance.

"This is the world's biggest human rights disaster," said Kapila, who now works as a special representative for the Aegis Trust, an organization that campaigns to prevent genocide. "The tactics they are using point towards war crimes and crimes against humanity being committed with the circumstantial evidence that it is quite strongly ethnically based."

SANCTIONS

He urged the international community to use diplomatic isolation and economic sanctions to push Sudan to allow humanitarian access to the rebel-controlled border areas.

Kapila, whose assignment as U.N. envoy ended in 2004, was speaking in the capital of South Sudan, which split away from Khartoum under the terms of the peace deal that ended the two-decade conflict.

The rebels in South Kordofan and Blue Nile - known as the SPLM-North - fought as part of the southern insurgent army during a civil war in Sudan that lasted from 1983 to 2005.

Sudan now accuses South Sudan's government of supporting the rebels in the border states.

The government in Juba strongly denies that, saying it severed links with the insurgents when it gained independence, but the issue continues to strain relations between the nations.

In Darfur, violence flared again at the end of December. More than 100,000 fled some of the worst clashes there between government troops, rebels and rival tribes in months, the U.N. said.

The International Criminal Court has issued arrest warrants for Sudan's President Omar Hassan al-Bashir and other senior officials on charges of masterminding genocide and war crimes in Darfur.

They deny this and refuse to recognize the court. Khartoum puts the death toll from the Darfur conflict at 10,000.

Kapila warned the violence in South Kordofan and Blue Nile could reach a similar scale as Darfur and said the crimes being committed in those states needed to be investigated.

"There's more than enough prima facie evidence that a properly constituted inquiry should determine the nature of these crimes, and I can't understand why that's not happening," he said.

(Editing by Tom Pfeiffer)

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Albanians protest after Serbia takes down memorial

PRESEVO, Serbia (Reuters) - Thousands of ethnic Albanians protested in Serbia on Monday against the removal of a memorial to fallen guerrilla fighters and dozens of Serb graves in neighboring Kosovo were damaged in apparent retaliation.

The monument in the town of Presevo was removed on Sunday by 200 masked Serbian police officers backed by armored personnel carriers. It bore the names of 27 ethnic Albanian guerrillas killed during a 2000 insurgency in the Presevo Valley, a spillover from the 1999 war in Kosovo, Serbia's former province.

Albania and Kosovo, which has an ethnic-Albanian majority, condemned the decision to remove the memorial, erected by the ethnic Albanian-dominated local council. Serbia, a candidate to join the European Union, said it would not be "humiliated".

In Presevo, one of Serbia's poorest regions bordering Kosovo and Macedonia, a Reuters cameraman saw about 2,000 protesters waving Albanian flags and banners reading: "Stop discrimination" and "Europe, open your eyes".

"The government says these men were terrorists, but people see them as heroes who defended their homes," said Riza Halimi, a ethnic-Albanian parliamentary deputy.

The Presevo Valley conflict followed a Serbian counter-insurgency war in Kosovo, which ended in 78 days of NATO air strikes in 1999 to wrest control of the province from Belgrade.

Albanians in the Presevo Valley fought to unite with Kosovo, but laid down their arms under a NATO-brokered peace deal. Serbia pledged greater rights and economic opportunity for the impoverished south, but progress has been patchy.

Kosovo declared independence in 2008, but is not recognized by Serbia.

Kosovo warned removal of the memorial could undermine EU-mediated talks between it and Serbia aimed at normalizing relations. The talks are key to Serbia's bid to join the EU.

On Monday, authorities in Kosovo said about 60 gravestones had been demolished at Serb cemeteries in the western town of Prizren and eastern village of Klokot.

Police said shots were fired at a memorial to Serbs killed during the 1998-99 war in the western enclave of Gorazdevac and that a monument to World War Two communist fighters had been destroyed in the eastern town of Vitina.

Police stepped up security around Serb Orthodox cemeteries.

The Organisation for Security and Cooperation in Europe (OSCE), which had been mediating to find a compromise on the memorial, said the decision to remove it had "undercut" the negotiations and appealed for calm.

Albania issued a statement saying the memorial was erected to honor "heroes of the Albanian nation" who had fought against late Serb strongman Slobodan Milosevic, ousted in October 2000.

"The racist, anti-Albanian legacy of Slobodan Milosevic is alive and dominates the official policy of Belgrade," it said.

Serbia's Prime Minister Ivica Dacic told reporters: "We are determined not to violate anybody's human, national and civic rights, but no one has the right to humiliate Serbia."

(Reporting by Reuters Television in Presevo, Aleksandar Vasovic and Matt Robinson in Belgrade, Fatos Bytyci in Pristina and Benet Koleka in Tirana; Writing by Aleksandar Vasovic; Editing by Matt Robinson and Janet Lawrence)

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France says review of nuclear cooperation with China "normal"

BEIJING (Reuters) - French Trade Minister Nicole Bricq said on Monday a decision by her country's new government to conduct a review of French-Chinese nuclear relations was a regular process and was "normal".

At the end of December, Finance Minister Pierre Moscovici said that France was investigating a nuclear partnership deal between EDF and Chinese nuclear utility China Guangdong Nuclear Power Corporation Holding (CGNPC).

That investigation is looking into why the deal initially excluded French nuclear reactor maker Areva and at the extent to which French strategic interests could be at risk.

Bricq, who was in China paying the second visit to the country by a French minister this month, said it was not surprising for a team that has been out of power for 10 years to undergo a "regular process to set strategy."

President Francois Hollande's socialist party won the 2012 presidential election after a decade of conservative rule.

Bricq played down concerns about Chinese irritation over the French investigation, as Moscovici did during his visit to Beijing two weeks ago.

"The important thing is to continue the Sino-French cooperation," Bricq told reporters in Beijing.

Bricq said her Chinese counterpart, Commerce Minister Chen Deming, had not expressed any undue concern about the review.

(Reporting by Lucy Hornby; Writing by Geert De Clercq; Editing by Anthony Barker)

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Algeria says 37 foreigners die in siege led by Canadian

ALGIERS (Reuters) - A total of 37 foreign workers died at an Algerian desert gas plant and seven are still missing after a hostage crisis coordinated by a Canadian, Algerian Prime Minister Abdelmalek Sellal said on Monday.

Sellal also said that 29 Islamists had been killed in the siege, which Algerian forces ended by storming the plant, and three had been captured alive.

Earlier an Algerian security source told Reuters that documents found on the bodies of two militants had identified them as Canadians, as special forces scoured the plant following Saturday's bloody end to the siege.

"A Canadian was among the militants. He was coordinating the attack," Sellal told a news conference, adding that the raiders had threatened to blow up the gas installation.

The Canadian's name was given only as Chedad.

In Ottawa, Canada's foreign affairs department said it was seeking information, but referred to the possible involvement of only one Canadian.

American, British, French, Japanese, Norwegian, Filipino and Romanian workers are dead or missing after the attack, for which veteran Islamist fighter Mokhtar Belmokhtar has claimed responsibility on behalf of al Qaeda.

The jihadists had planned the attack two months ago in neighboring Mali, where French forces began fighting Islamists this month, Sellal added.

In Tokyo, Prime Minister Shinzo Abe told a news conference he had received information that seven Japanese had been killed and the fate of three more was still unknown.

Six Filipinos died and four were wounded, a government spokesman in Manila said.

Norwegian International Development Minister Heikki Holmaas said his stepfather, Tore Bech, was among the missing and presumed dead. Bech was a manager at the site for the Norwegian energy company Statoil.

Sellal said that initially the raiders in Algeria had tried to hijack a bus carrying foreign workers to a nearby airport and take them hostage. "They started firing at the bus and received a severe response from the soldiers guarding the bus," he said. "They failed to achieve their objective, which was to kidnap foreign workers from the bus."

He said special forces and army units were deployed against the militants, who had planted explosives in the gas plant with a view to blowing up the facility.

One group of militants had tried to escape in some vehicles, each of which also was carrying three or four foreign workers, some of whom had explosives attached to their bodies.

After what he called a "fierce response from the armed forces", the raiders' vehicles crashed or exploded and one of their leaders was among those killed.

LIBYAN NUMBER PLATES

Sellal said the jihadists who staged the attack last Wednesday had crossed into the country from neighboring Libya.

An Algerian newspaper said they had arrived in cars painted in the colors of state energy company Sonatrach but registered in Libya, a country awash with arms since Muammar Gaddafi's fall in 2011.

The raid has exposed the vulnerability of multinational-run oil and gas installations in an important producing region and pushed the growing threat from Islamist militant groups in the Sahara to a prominent position in the West's security agenda.

Algerian President Abdelaziz Bouteflika has ordered an investigation into how security forces failed to prevent the attack, the daily El Khabar said.

Algerian Tahar Ben Cheneb - leader of a group called the Movement of Islamic Youth in the South who was killed on the first day of the assault - had been based in Libya where he married a local woman two months ago, it said.

ONE-EYED JIHADIST

Belmokhtar - a one-eyed jihadist who fought in Afghanistan and Algeria's civil war of the 1990s when the secular government fought Islamists - tied the desert attack to France's intervention across the Sahara against Islamist rebels in Mali.

"We in al Qaeda announce this blessed operation," he said in a video, according to Sahara Media, a regional website. About 40 attackers participated in the raid, he said, roughly matching the government's figures for fighters killed and captured.

Belmokhtar demanded an end to French air strikes against Islamist fighters in neighboring Mali. These began five days before the fighters swooped before dawn and seized a plant that produces 10 percent of Algeria's natural gas exports.

U.S. and European officials doubt such a complex raid could have been organized quickly enough to have been conceived as a direct response to the French military intervention. However, the French action could have triggered an operation that had already been planned.

The group behind the raid, the Mulathameen Brigade, threatened to carry out more such attacks if Western powers did not end what it called an assault on Muslims in Mali, according to the SITE service, which monitors militant statements.

In a statement published by the Mauritania-based Nouakchott News Agency, the hostage takers said they had offered talks about freeing the captives, but the Algerian authorities had been determined to use military force. Sellal blamed the raiders for the collapse of negotiations.

BLOODY SIEGE

The siege turned bloody on Thursday when the Algerian army opened fire, saying fighters were trying to escape with their prisoners. Survivors said Algerian forces blasted several trucks in a convoy carrying both hostages and their captors.

Nearly 700 Algerian workers and more than 100 foreigners escaped, mainly on Thursday when the fighters were driven from the residential barracks. Some captors remained holed up in the industrial complex until Saturday when they were overrun.

The bloodshed has strained Algeria's relations with its Western allies, some of which have complained about being left in the dark while the decision to storm the compound was being taken.

Nevertheless, Britain and France both defended the military action by Algeria, the strongest military power in the Sahara and an ally the West needs in combating the militants.

Among other foreigners confirmed dead by their home countries were three Britons, one American and two Romanians. The missing include five Norwegians, three Britons and a British resident. An Algerian security source said at least one Frenchman was also among the dead.

The raid on the plant, which was home to expatriate workers from Britain's BP, Norway's Statoil, Japanese engineering firm BGC Corp and others, exposed the vulnerability of multinational oil operations in the Sahara.

However, Algeria is determined to press on with its energy industry. Oil Minister Youcef Yousfi visited the site and said physical damage was minor, state news service APSE reported. The plant would start up again in two days, he said.

Algeria, scarred by the civil war with Islamist insurgents in the 1990s which claimed 200,000 lives, insisted from the start of the crisis there would be no negotiation in the face of terrorism. France especially needs close cooperation from Algeria to crush Islamist rebels in northern Mali.

(Additional reporting by Balazs Koranyi in Oslo, William Maclean in Dubai, d Daniel Flynn in Dakar, David Ljunggren in Ottawa and Ed Klamann in Tokyo; Writing by David Stamp; Editing by Giles Elgood)

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Pakistan Shi'ites to bury bomb victims after meeting PM

QUETTA, Pakistan (Reuters) - Tens of thousands of Pakistani Shi'ite Muslims began burying their dead in a mass grave Monday amid tears and pictures of the fallen, ending a three-day protest over one of the worst sectarian attacks in the country's history.

Thousands of people from Shi'ite Hazara community had been holding vigil next to the bodies of the 96 people killed in Thursday's bombings to demand better protection from a rising tide of sectarian attacks.

Defying Muslim tradition and leaving the bodies unburied was a powerful rebuke to the government that inspired other protests in solidarity around the country.

The Shi'ite leaders only agreed to hold the burials after Prime Minister Raja Pervez Ashraf travelled to the provincial capital of Quetta and agreed to some of their demands.

On Monday, he met the protest leaders and agreed to sack the entire provincial government. Shi'ite leaders said many of the officials were implicated in the violence.

As the white shrouded bodies were laid to rest in a long trench, men, women and children wept in the cold air, huddled together for warmth and comfort.

The trees of the graveyard and the electricity poles outside were papered with pictures of the victims. As the bodies were being lowered, some women screamed their grief beside the graves of relatives killed in previous attacks.

"We are tired of burying our dear ones," said Dr. Zulfiqar Jaffery, 50, who lost his two brothers-in-law in the bombing. He cried as he tried to comfort another grieving relative.

"Our government would feel our pain if they were facing the same situation," he said.

Many Shi'ites are bitter that it took three days for the Pakistani prime minister to come and address their protest, and say the government has done little to stem the spiraling sectarian violence.

More than 400 Shi'ite were killed in Pakistan last year, many by hitmen or bombs, and the perpetrators are almost never caught. Some were children gunned down as their parents took them to school.

"I lost several cousins in previous incidents of target killing. Now another cousin died in the bomb blast," said businessman Muhammad Hussain, 42.

He said dismissing the provincial government was a good step but only the arrest of the killers could make the community truly secure.

Until arrests are made, the community will continue to live under siege, he said. Signs of their fear could be seen in heavily armed police patrolling the streets near the burial and hastily installed metal scanners at the graveyard entrances.

Many Shi'ite fear that the civilian government, which rarely challenges the powerful security services, is too weak, afraid or indifferent to do anything about the attacks on their communities.

Lashkar-e-Jhangvi, the banned militant Sunni group that claimed the attack, has historically had close ties with elements within Pakistan's military and intelligence services. The LeJ wants to expel the Shi'ites, who make up about 20 percent of Pakistan's 180 million citizens, and set up a Sunni theocracy.

(Writing by Katharine Houreld; editing by Roger Atwood and Jason Neely)

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Syria war envelops region in "staggering" crisis: aid agency

BEIRUT (Reuters) - Syria's civil war is unleashing a "staggering humanitarian crisis" on the Middle East as hundreds of thousands of refugees flee violence including gang rape, an international aid agency said on Monday.

Opposition activists said an air strike on rebel-held territory southwest of Damascus killed 20 people, including women and children, adding to the more than 60,000 people estimated to have been killed in the 21-month-old conflict.

Over 600,000 Syrians have fled abroad - many to neighboring Turkey, Lebanon and Jordan - as violence has spread and international efforts to find a political solution have sagged.

Refugees interviewed by the International Rescue Committee (IRC) cited sexual violence as a major reason they fled the country, the New York-based organization said in a 23-page report on the crisis published on Monday.

Gang rapes often happened in front of family members and women had been kidnapped, raped, tortured and killed, it said.

"After decades of working in war and disaster zones, the IRC knows that women and girls suffer physical and sexual violence in every conflict. Syria is no exception," the group added.

Rebels and government forces have both been accused of human rights abuses during the conflict, which began with peaceful protests against President Bashar al-Assad in March 2011.

The unrest turned violent after government forces fired on demonstrators and has since become a full-scale civil war.

Fierce winter weather has worsened the plight of hundreds of thousands of refugees. The IRC urged donors to step up planning and funding in the expectation that more Syrians will flee.

"Nearly two years into Syria's civil war, the region faces a staggering humanitarian disaster," the IRC report said.

AIR POWER

Despite advancing in Syria's north and east and winning support from regional powers like Turkey and Saudi Arabia, the Syrian rebels have been unable to break a military stalemate with government forces elsewhere.

They have struggled to counter government air power in particular, making it hard for them to take and hold territory crucial to Assad's grip on power, including major cities.

An activist in Moadamiyeh, a rebel-held town southwest of Damascus, said an air strike there killed 20 people on Monday.

Activist video footage showed images of the limp body of a boy being pulled out from broken concrete, his back covered in dust and his front in blood.

The Syrian Observatory for Human Rights, a Britain-based monitoring group, said at least 13 people had died in the air raid but the toll was likely to rise.

Syrian state television said "terrorists" - its word for rebels - had fired a mortar from the Damascus suburb of Daraya on a civilian building in Moadamiyeh, killing women and children.

The reports could not be independently verified because of government restrictions on independent media in Syria.

Syrian warplanes also bombarded the strategic Taftanaz air base that rebels seized last week, the Observatory said.

In another sign of escalating bloodshed, Human Rights Watch said it had evidence that government forces had used multi-barrel rocket launchers to deliver Egyptian-made cluster munitions in recent attacks.

"Syria is escalating and expanding its use of cluster munitions, despite international condemnation of its embrace of this banned weapon," it said.

DEADLOCK

Syria's rising death toll has brought international intervention no closer. The United States and Russia have been deadlocked over how to resolve the crisis.

Moscow - which has continued to back its long-standing ally and arms client Assad - urged the opposition on Sunday to make its own proposals in response to a speech by Assad a week ago.

The speech, which offered no concessions, was criticized by the United Nations and United States. Syrian rebels described it as a renewed declaration of war.

Talks between Russia and the United States in Geneva on Friday failed to produce a breakthrough.

As diplomatic efforts have stalled, the conflict has continued to draw in Syria's neighbors.

A mortar round apparently fired from Syria crashed in a field in Turkey overnight close to a refugee camp housing thousands of Syrians along the border, Turkish state media said.

NATO troops have begun deploying Patriot defense missiles in Turkey against a potential attack from its southern neighbor. The missiles are expected to be operational by the end of the month. Turkey is a strong supporter of the Syrian rebels.

NATO said Syrian government forces had launched a short-range, Scud-style ballistic missile on Sunday, bringing to more than 20 the number launched in the past month.

The missiles, apparently fired against opposition targets, landed in Syrian territory, mostly in northern Syria, a NATO spokeswoman said in Brussels, but some of the missiles landed "quite close" to the Turkish frontier.

(Additional reporting by Laila Bassam in Beirut and Adrian Croft in Brussels; Writing by Alexander Dziadosz; Editing by Mark Heinrich)

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Second French commando dies of wounds: Somali rebels

MOGADISHU (Reuters) - A second French commando has died from wounds in Somalia after a failed attempt at the weekend to rescue a French agent held hostage by al Shabaab since 2009, the Somalian rebel group said on Monday.

The al-Qaeda linked group also maintained that the hostage, Denis Allex, who France says it believes was killed during the operation, was still alive.

The militants put up fierce resistance when French special forces went into southern Somalia by helicopter under the cover of darkness on Saturday to try to free Allex.

There was some confusion over the exact outcome of the mission, with the French government saying at one point that one commando had died and the other gone missing and later saying that both appeared to be dead.

"The second commando died from his bullet wounds. We shall display the bodies of the two Frenchmen," Sheikh Abdiasis Abu Musab, spokesman for al Shabaab's military operations, told Reuters by telephone.

Allex's fate would be decided later, he said.

Defence Minister Jean-Yves Le Drian told reporters on Monday it seemed that both commandos were killed in the raid and said France was braced for some kind of gory video message by al Shabaab.

"Everything leads us to think that the hostage was assassinated and the other disappeared soldier has been killed," he said.

"And we are also, unfortunately, led to believe that al Shabaab is preparing to organize a macabre and shameful display of events."

A ministry source said earlier the government believed both commandos were dead, but it did not have the bodies.

Allex was one of two officers from France's DGCE intelligence agency kidnapped by al Shabaab three-and-a-half years ago in the capital Mogadishu. His colleague Marc Aubriere escaped a month later but Allex had been held ever since in what Paris called "inhumane conditions".

A video of a gaunt-looking Allex pleading with Hollande to negotiate his release and save his life appeared on a website in October used by Islamist militant groups around the world. Reuters could not verify its authenticity.

"Allex is alive and healthy," Musab said.

After Allex's abduction, al Shabaab issued a series of demands including an end to French support for the Somali government and a withdrawal of the 17,600-strong African peacekeeping force propping up the U.N.-backed administration.

Under pressure from the African troops and Somali government forces, the rebels have lost many of their urban strongholds, including Mogadishu, though they still wield influence in rural areas across southern and central Somalia.

Al Shabaab wants to impose their strict version of sharia, or Islamic law, across the Horn of Africa state.

The raid to free Allex coincided with the launch of French air strikes on al Qaeda-affiliated rebels in Mali in West Africa. Le Drian said over the weekend that the two military operations were unconnected.

French President Francois Hollande said on Saturday the Somalia operation had failed despite the "sacrifice" of two soldiers and "no doubt the assassination of our hostage".

Earlier that day France's defence ministry said one of the two Frenchmen was missing in action, stoking speculation that the soldier had been captured alive.

(Additional reporting by Alexandria Sage and Catherine Bremer in Paris; Writing by Richard Lough; Editing by Angus MacSwan)

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Iraq frees prisoners in gesture to end Sunni protests

BAGHDAD (Reuters) - The Iraqi government released more than 300 prisoners held under anti-terrorism laws on Monday as a goodwill gesture to Sunni Muslim demonstrators staging protests against Shi'ite Prime Minister Nuri al-Maliki.

Three weeks of demonstrations, mainly in Sunni-dominated Anbar province, have evolved into a tough challenge for the Shi'ite premier, increasing worries that Iraq risks sliding back into the sectarian confrontation of its recent past.

As one condition, Sunni leaders had demanded the release of detainees held under anti-terrorism law many believe authorities use unfairly to target their minority sect.

A committee reviewing cases freed 335 detainees whose jail terms had already finished or whose cases were dismissed because of a lack of evidence.

"In name of the Iraqi State, I apologize to those who were arrested and jailed and were later proven to be innocent," said Deputy Prime Minister Hussein al-Shahristani, a senior Iraqi Shi'ite figure heading the committee.

Thousands of protesters are still camped out in Anbar, once the home of al-Qaeda's campaign against U.S. troops in Iraq, where they have blocked a major route to Jordan and Syria near the Sunni heartland city of Ramadi.

Detainee releases were just one condition from protesters. Other demands range from the more radical calls for Maliki to step down, to the end of a campaign to track down former members of Saddam Hussein's outlawed Baath party.

Since the fall of strongman Saddam in 2003, many Iraqi Sunnis feel they have been sidelined by the country's Shi'ite majority. The country's government, split among Shi'ite, Sunni and ethnic Kurds, is deadlocked over how to share power.

(Reporting by Suadad al-Salhy; Writing by Patrick Markey; Editing by Angus MacSwan)

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African mediators press Sudans to end stand-off

ADDIS ABABA (Reuters) - The African Union sought on Monday to defuse hostilities between Sudan and South Sudan that brought them close to war last year and end a freeze on oil exports that threatens to wreck their economies.

South Sudan seceded from the north in 2011 after decades of wars but border disputes and disagreements over oil pipeline fees have dragged on, delaying the economic development that would bring hope to their war-weary populations.

The South shut down its oil production of 350,000 barrels per day a year ago to try to force a cut in the fees it pays the north to pipe its crude to a coastal terminal for export.

With oil the lifeline of both economies, the move is straining their state budgets, weakening their currencies, stoking inflation and worsening economic hardship.

The African Union (AU) brought together Sudan's President Omar Hassan al-Bashir and South Sudan's Salva Kiir a week ago in the Ethiopian capital Addis Ababa to press them to fulfill promises made in September to pull back troops from the north-south border.

The creation of a buffer zone along the frontier would help defuse tensions, perhaps enough for the flow of oil to resume.

After that meeting, AU mediator Thabo Mbeki said both sides had agreed to set up the buffer zone. The regional body planned to publish a timeframe on Sunday, when the talks were supposed to resume. But both delegations arrived late, delaying the start by a day.

Monday's session, attended by Sudanese Defence Minister Abdel Raheem Mohammed Hussein and his southern counterpart John Kong Nyuon, focused again on how to implement the buffer zone, AU officials in Addis Ababa said.

"The discussions will center on overall implementation of the agreements," said Atif Kiir, spokesman for South Sudan's delegation. There was no immediate comment from Sudan.

Animosity runs high between Bashir's government in Khartoum and his former foes up the Nile in Juba.

Nearly 2 million people died in a north-south civil war that left South Sudan economically devastated and awash with guns.

Khartoum now accuses the south of supporting a rebellion within Sudan by former members of the southern insurgent army who found themselves north of the border at partition.

South Sudan has denied supporting the rebels.

Sudan's defence minister said last month that the two sides would tackle the sensitive issue for the first time in the latest round of talks.

(Reporting by Aaron Maasho; Editing by Tom Pfeiffer)

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India army chief threatens Pakistan over Kashmir killings

NEW DELHI (Reuters) - India's army chief threatened to retaliate against Pakistan for the killing of two soldiers in fighting near the border of the disputed region of Kashmir, saying he had asked his commanders there to be aggressive in the face of provocation.

General Bikram Singh's remarks come amid mounting public anger in India after Delhi accused Pakistani soldiers of slitting the throat of one of the soldiers and decapitating him.

Despite each side blaming the other for the worst outbreak of violence in the area since a ceasefire was agreed nine years ago, analysts said a breakdown in ties was highly unlikely.

The two nations have fought three wars, two over Kashmir, since independence in 1947 and are now both nuclear-armed.

Calling the beheading of the soldier "gruesome", Singh told a news conference: "We reserve the right to retaliate at a time and place of our choosing."

Singh said the Indian army would honor the ceasefire in Kashmir, so long as Pakistan did, but would respond immediately to any violation of the truce.

"I expect all my commanders at the Line of Control to be both aggressive and offensive in the face of provocation and fire," he said.

Last week's fighting in the Himalayan region both nations claim comes at a time when the two sides have made some progress in repairing ties, notably by opening trade links.

Both armies have lost two soldiers each in the fighting along parts of the 740-km (460-mile) de facto border this month.

"The attack on January 8 was premeditated, a pre-planned activity. Such an operation requires planning, detailed reconnaissance," Singh said.

His remarks came hours before local commanders met at a crossing point on the ceasefire line for the first time since the fighting erupted to try and reduce tensions. Both sides lodged protests, accusing each other of ceasefire violations.

The ceasefire in Kashmir has held since it went into effect in November 2003, surviving even the crisis in ties after the Mumbai attacks in November 2008 by Pakistan-based militants.

Analysts said it was unlikely the two armies would escalate the situation further and that Singh's remarks may well have been made to maintain the morale of his troops and to respond to a public outcry over the mutilation of both soldiers' bodies.

"He is trying to tell Pakistan that it cannot afford to open another front while it is in a very critical state because of a large number of internal issues," said research fellow Ashok K. Behuria at the New Delhi-based Institute for Defence Studies and Analysis.

"He's under pressure from the Indian people and the media but I don't think that India will be so proactive as to respond disproportionately to the situation," Behuria said.

The family members of the slain Indian soldier, Hemraj Singh, have started a hunger strike demanding retribution and that his remains be back brought back. The family is not related to the army chief.

"Our demand is not something big. My brother's head should be brought back and the Pakistanis should be taught a lesson," said Jai Singh in their village in northern India.

FLARE-UP

The flare-up began on January 6 when Islamabad accused Indian soldiers of entering its territory and killing a soldier. India said Pakistani soldiers came about 600 meters (yards) into its territory two days later and killed two Indian soldiers on patrol, the attack the army chief was referring to.

Pakistan said one of its soldiers was killed in further fighting on Thursday. And, at a flag meeting in Chakan da Bagh in the Poonch sector, Pakistan accused India of a raid across the ceasefire line last week, a Pakistani army statement said.

Tensions at the Kashmir frontier have been rising for some months now with the two sides exchanging fire near a village in a northern stretch that may have started the latest series of attacks and counter attacks.

Singh said Indian troops had tried to improve their defenses after coming under constant fire from Pakistan at Charonda village deep in snow-capped mountains in the Uri sector where Pakistan troops were in an advantageous position.

Three civilians including a pregnant 23-year-old had been killed in cross-border fire from Pakistan in October, he said.

"In that areas when you are being fired upon, you don't expect soldiers to walk in the open. Therefore soldiers have prepared a communication trench, a crawl trench and an observation post," he said. Such activity was routine and done by both armies to secure defenses, he said.

Pakistan said the construction of concrete defenses was prohibited under the terms of the ceasefire.

Hundreds of people protested on Monday in Muzaffarabad, the capital of Pakistan-controlled Kashmir, and in second city Mirpur, accusing India of stepping up tensions.

"They (Indians) are bent upon destroying peace along the Line of Control by resorting to firing without any provocation," Pakistani Kashmir prime minister Chaudhry Abdul Majeed told the Muzaffarabad rally.

Tensions over the hostilities in Kashmir threatened to spill into sport, with members of India's Mumbai-based right wing Shiv Sena party protesting against the presence of Pakistani players in a domestic Indian hockey league.

The players had to be whisked away and the team subsequently left Mumbai on Monday for New Delhi, where the inaugural match of the five-team Hockey India League will be held.

"Pakistan is involved in militant attacks on India and you are letting them make money in India ... this is injustice to the martyrs who have died in these attacks," Rahul Narvekar, a spokesman for the party told Reuters.

(Additional reporting by Satarupa Bhattacharjya in New Delhi and; Abu Arqam Naqash in Muzaffarabad; Editing by Louise Ireland)

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