North Korea to target U.S. with nuclear, rocket tests

SEOUL (Reuters) - North Korea said on Thursday it would carry out further rocket launches and a nuclear test that would target the United States, dramatically stepping up its threats against a country it called its "sworn enemy".

The announcement by the country's top military body came a day after the U.N. Security Council agreed to a U.S.-backed resolution to censure and sanction North Korea for a rocket launch in December that breached U.N. rules.

North Korea is not believed to have the technology to deliver a nuclear warhead capable of hitting the continental United States, although its December launch showed it had the capacity to deliver a rocket that could travel 10,000 km (6,200 miles), potentially putting San Francisco in range, according to an intelligence assessment by South Korea.

"We are not disguising the fact that the various satellites and long-range rockets that we will fire and the high-level nuclear test we will carry out are targeted at the United States," North Korea's National Defence Commission said, according to state news agency KCNA.

North Korea is believed by South Korea and other observers to be "technically ready" for a third nuclear test, and the decision to go ahead rests with leader Kim Jong-un, who pressed ahead with the December rocket launch in defiance of the U.N. sanctions.

China, the one major diplomatic ally of the isolated and impoverished North, agreed to the U.S.-backed resolution and it also supported resolutions in 2006 and 2009 after Pyongyang's two earlier nuclear tests.

Thursday's statement by North Korea represents a huge challenge to Beijing as it undergoes a leadership transition, with Xi Jinping due to take office in March.

China's Foreign Ministry called for calm and restraint and a return to six-party talks, but effectively singled out North Korea, urging the "relevant party" not to take any steps that would raise tensions.

"We hope the relevant party can remain calm and act and speak in a cautious and prudent way and not take any steps which may further worsen the situation," ministry spokesman Hong Lei told reporters at a regular press briefing.

North Korea has rejected proposals to restart the talks aimed at reining in its nuclear capacity. The United States, China, Russia, Japan and the two Koreas are the six parties involved.

"After all these years and numerous rounds of six-party talks we can see that China's influence over North Korea is actually very limited. All China can do is try to persuade them not to carry out their threats," said Cai Jian, an expert on Korea at Fudan University in Shanghai.

Analysts said the North could test as early as February as South Korea prepares to install a new, untested president or that it could choose to stage a nuclear explosion to coincide with former ruler Kim Jong-il's Feb 16 birthday.

"North Korea will have felt betrayed by China for agreeing to the latest U.N. resolution and they might be targeting (China) as well (with this statement)," said Lee Seung-yeol, senior research fellow at Ewha Institute of Unification Studies in Seoul.

U.S. URGES NO TEST

Washington urged North Korea not to proceed with a third test just as the North's statement was published on Thursday.

"Whether North Korea tests or not is up to North Korea," Glyn Davies, the top U.S. envoy for North Korean diplomacy, said in the South Korean capital of Seoul.

"We hope they don't do it. We call on them not to do it," Davies said after a meeting with South Korean officials. "This is not a moment to increase tensions on the Korean peninsula."

The North was banned from developing missile and nuclear technology under sanctions dating from its 2006 and 2009 nuclear tests.

A South Korean military official said the concern now is that Pyongyang could undertake a third nuclear test using highly enriched uranium for the first time, opening a second path to a bomb.

North Korea's 2006 nuclear test using plutonium produced a puny yield equivalent to one kiloton of TNT - compared with 13-18 kilotons for the Hiroshima bomb - and U.S. intelligence estimates put the 2009 test's yield at roughly two kilotons

North Korea is estimated to have enough fissile material for about a dozen plutonium warheads, although estimates vary, and intelligence reports suggest that it has been enriching uranium to supplement that stock and give it a second path to the bomb.

According to estimates from the Institute for Science and International Security from late 2012, North Korea could have enough weapons grade uranium for 21-32 nuclear weapons by 2016 if it used one centrifuge at its Yongbyon nuclear plant to enrich uranium to weapons grade.

North Korea has not yet mastered the technology needed to make a nuclear warhead small enough for an intercontinental missile, most observers say, and needs to develop the capacity to shield any warhead from re-entry into the earth's atmosphere.

North Korea gave no time-frame for the coming test and often employs harsh rhetoric in response to U.N. and U.S. actions that it sees as hostile.

The bellicose statement on Thursday appeared to dent any remaining hopes that Kim Jong-un, believed to be 30 years old, would pursue a different path from his father, Kim Jong-il, who oversaw the country's military and nuclear programs.

The older Kim died in December 2011.

"The UNSC (Security Council) resolution masterminded by the U.S. has brought its hostile policy towards the Democratic Peoples Republic of Korea (North Korea) to its most dangerous stage," the commission was quoted as saying.

(Additional reporting by Christine Kim in SEOUL, Ben Blanchard and Sui-Lee Wee in Beijing; Writing by David Chance; Editing by Raju Gopalakrishnan and Ron Popeski)

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Cameron promises Britons straight choice on EU exit

LONDON (Reuters) - Prime Minister David Cameron promised on Wednesday to give Britons a referendum choice on whether to stay in the European Union or leave if he wins an election in 2015, placing a question mark over Britain's membership for years.

Cameron ended months of speculation by announcing in a speech the plan for a vote sometime between 2015 and the end of 2017, shrugging off warnings that this could imperil Britain's economic prospects and alienate its biggest trading partner.

He said the island nation, which joined the EU's precursor European Economic Community 40 years ago, did not want to retreat from the world, but public disillusionment with the EU was at "an all-time high".

"It is time for the British people to have their say. It is time for us to settle this question about Britain and Europe," Cameron said. His Conservative party will campaign for the 2015 election promising to renegotiate Britain's EU membership.

"When we have negotiated that new settlement, we will give the British people a referendum with a very simple in or out choice to stay in the European Union on these new terms; or come out altogether. It will be an in-out referendum."

The speech firmly ties Cameron to an issue that was the bane of a generation of Conservative leaders. In the past, he has avoided partisan fights over Europe, the undoing of the last two Conservative prime ministers, John Major and Margaret Thatcher.

Britain would seek to claw back powers from Brussels, he said, a proposal that will be difficult to sell to other European countries. London will do an "audit" to determine which powers Brussels has that should be delegated to member states.

Sterling fell to its lowest in nearly five months against the dollar on Wednesday as Cameron was speaking.

The response from EU partners was predictably frosty. French Foreign Minister Laurent Fabius quipped: "If Britain wants to leave Europe we will roll out the red carpet for you," echoing Cameron himself, who once used the same words to invite rich Frenchmen alienated by high taxes to move to Britain.

German Foreign Minister Guido Westerwelle said his country wanted Britain to remain a full EU member, but London could not expect to pick and choose the aspects of membership it liked.

Business leaders have warned that the prospect of years of doubt over Britain's EU membership would damage the investment climate.

"Having a referendum creates more uncertainty and we don't need that," Martin Sorrell, chief executive of advertising giant WPP, told the World Economic Forum in Davos.

"This is a political decision. This is not an economic decision. This isn't good news. You added another reason why people will postpone investment decisions."

The speech also opens a rift with Cameron's junior coalition partners, the Liberal Democrats. Their leader, Deputy Prime Minister Nick Clegg, said the plan would undermine a fragile economic recovery.

And even allies further afield are wary: the United States has said it wants Britain to remain inside the EU with "a strong voice".

EUROSCEPTICS THRILLED

Cameron has been pushed into taking such a strong position in part by the rise of the UK Independence Party, which favors complete withdrawal from the EU and has climbed to third in opinion polls, mainly at the expense of the Conservatives.

"All he's trying to do is to kick the can down the road and to try and get UKIP off his back," said UKIP leader Nigel Farage.

Eurosceptics in Cameron's party were thrilled by the speech. Conservative lawmaker Peter Bone called it "a terrific victory" that would unify 98 percent of the party. "He's the first prime minister to say he wants to bring back powers from Brussels," Bone told Reuters. "It's pretty powerful stuff".

Whether Cameron will ever hold the referendum remains as uncertain as the Conservatives' chances of winning the next election in 2015.

They trail the opposition Labour party in opinion polls, and the coalition government is grappling with a stagnating economy as it pushes through public spending cuts to reduce Britain's large budget deficit.

Cameron said he would prefer Britain, the world's sixth biggest economy, to remain inside the 27-nation EU. As long as he secured the reforms he wants, he would campaign for Britain to stay inside the EU "with all my heart and soul".

But he also made clear he believed the EU must be radically reformed. It was riskier to maintain the status quo than to change, he said.

"The biggest danger to the European Union comes not from those who advocate change, but from those who denounce new thinking as heresy," he said.

"WAFER THIN" CONSENT

The euro zone debt crisis was forcing the bloc to change, and Britain would fight to make sure new rules were fair to countries that didn't use the common currency, he said. Britain is the largest of the 10 EU members that do not use the euro.

Democratic consent for the EU in Britain was now "wafer thin", he said, reflecting the results of opinion polls that show a slim majority would vote to leave the bloc.

"Some people say that to point this out is irresponsible, creates uncertainty for business and puts a question mark over Britain's place in the European Union," said Cameron. "But the question mark is already there: ignoring it won't make it go away."

Asked after the speech whether other EU countries would agree to renegotiate Britain's membership, Cameron said he was an optimist and that there was "every chance of success."

"I want to be the prime minister who confronts and gets the right answer for Britain on these kind of issues," he said.

It is nearly 40 years since British voters last had a say in a referendum on Britain's membership of the European club. A 1975 vote saw just over 67 percent opt to stay inside with nearly 33 percent wanting to leave.

(Additional reporting by Paul Taylor in Davos and Alexandra Hudson in Berlin; Editing by Guy Faulconbridge and Peter Graff)

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Israel goes to polls, set to re-elect Netanyahu

JERUSALEM (Reuters) - Israelis voted on Tuesday in an election that is expected to hand hawkish Prime Minister Benjamin Netanyahu a third term, opening the way for a showdown with Iran and bolstering opponents of Palestinian statehood.

However, Netanyahu's own Likud party, running alongside the ultra-nationalist Yisrael Beitenu group, looks set to have fewer seats than in the previous parliament, with opinion polls showing a surge in support for the far-right Jewish Home party.

Political sources said Netanyahu, concerned by his apparent fall in popularity, might approach center-left parties after the ballot in an effort to broaden his coalition and present a more moderate face to Washington and other concerned allies.

"We want Israel to succeed, we vote Likud-Beitenu ... The bigger it is, the more Israel will succeed," Netanyahu said after voting alongside his wife and two sons.

Some 5.66 million Israelis are eligible to cast a ballot, with polling stations closing at 10 p.m.. Full results are due by Wednesday morning, opening the way for coalition talks that could take several weeks.

By 2 p.m., the Israeli election committee said turnout was 38.3 percent, up from 34 percent at the same time in 2009 and the highest level since 1999. Ahead of the ballot, analysts had speculated that high turnout would benefit center-left parties that have sometimes struggled to motivate their voter base.

The lackluster election campaign failed to focus on any single issue and with a Netanyahu victory predicted by every opinion poll, the two main political blocs seemed to spend more time on internal feuding than confronting each other.

"There is a king sitting on the throne in Israel and I wanted to dethrone him, but it looks like that won't happen," said Yehudit Shimshi, a retired teacher voting in central Israel in balmy winter weather that drew out the electorate.

No Israeli party has ever secured an absolute majority, meaning that Netanyahu, who says that dealing with Iran's nuclear ambitions is his top priority, will have to bring various allies on board to control the 120-seat Knesset.

The former commando has traditionally looked to religious, conservative parties for backing and is widely expected to seek out the surprise star of the campaign, self-made millionaire Naftali Bennett, who heads the Jewish Home party.

Bennett has ruled out any peace pact with the Palestinians and calls for the annexation of much of the occupied West Bank.

His youthful dynamism has struck a chord amongst Israelis, disillusioned after years of failed peace initiatives, and has eroded Netanyahu's support base.

The Likud has also shifted further right in recent months, with hardline candidates who reject the so-called two-state solution dominating the top of the party list.

"TRENDY PARTIES"

Surveys suggest Bennett may take up to 14 seats, many at the expense of Likud-Beitenu, which was projected to win 32 in the last round of opinion polls published on Friday - 10 less than the two parties won in 2009 when they ran separate lists.

Acknowledging the threat, Netanyahu's son Yair urged young Israelis not to abandon the old, established Likud.

"Even if there are more trendy parties, there is one party that has a proven record," he said on Tuesday.

Amongst the new parties standing for the first time in an election were Yesh Atid (There is a Future), a centrist group led by former television host Yair Lapid, seen winning 13 seats.

"All our lives we voted Likud, but today we voted for Lapid because we want a different coalition," said Ahuva Heled, 55, a retired teacher voting with her husband north of Tel Aviv.

Lapid has not ruled out joining a Netanyahu cabinet, but is pushing hard for ultra-Orthodox Jews to do military service - a demand fiercely rejected by some allies of the prime minister.

Israel's main opposition party, Labour, which is seen capturing up to 17 seats, has already ruled out a repeat of 2009, when it initially hooked up with Netanyahu, promising to promote peace negotiations with the Palestinians.

U.S.-brokered talks collapsed just a month after they started in 2010 following a row over settlement building, and have lain in ruins ever since. Netanyahu blamed the Palestinians for the failure and says his door remains open to discussions.

Palestinian President Mahmoud Abbas says he won't return to the table unless there is a halt to settlement construction.

That looks unlikely, with Netanyahu approving some 11,000 settler homes in December alone, causing further strains to his already notoriously difficult relations with U.S. President Barack Obama, who was sworn in for a second term on Monday.

IRAN THREAT

Tuesday's vote is the first in Israel since Arab uprisings swept the region two years ago, reshaping the Middle East.

Netanyahu has said the turbulence - which has brought Islamist governments to power in several countries long ruled by secularist autocrats, including neighboring Egypt - shows the importance of strengthening national security.

If he wins on Tuesday, he will seek to put Iran back to the top of the global agenda. Netanyahu has said he will not let Tehran enrich enough uranium to make a single nuclear bomb - a threshold Israeli experts say could arrive as early as mid-2013.

Iran denies it is planning to build the bomb, and says Israel, widely believed to have the only nuclear arsenal in the Middle East, is the biggest threat to the region.

The issue has barely registered during the election campaign, with a poll in Haaretz newspaper on Friday saying 47 percent of Israelis thought social and economic issues were the most pressing concern, against just 10 percent who cited Iran.

One of the first problems to face the next government, which is unlikely to take power before the middle of next month at the earliest, is the stuttering economy.

Data last week showed the budget deficit rose to 4.2 percent of gross domestic product in 2012, double the original estimate, meaning spending cuts and tax hikes look certain.

(Additional reporting by Ori Lewis, Jeffrey Heller and Tova Cohen; Editing by Alistair Lyon)

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Algeria finds dead Canadian militants as siege toll rises

ALGIERS (Reuters) - Algerian forces have found the bodies of two Canadian Islamist fighters after a bloody siege at a desert gas plant, a security source said on Monday, as the death toll reached at least 80 after troops stormed the complex to end the hostage crisis.

Algerian Prime Minister Abdelmalek Sellal is expected to give details on Monday about the siege near the town of In Amenas, which left American, British, French, Japanese, Norwegian, Filipino and Romanian workers dead or missing.

Much remains unclear about events after the jihadists staged the attack last Wednesday. However, an Algerian newspaper said they had arrived in cars painted in the colors of state energy company Sonatrach but registered in neighboring Libya, a country awash with arms since Muammar Gaddafi's fall in 2011.

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

Veteran Islamist fighter Mokhtar Belmokhtar claimed responsibility for the attack on behalf of al Qaeda, and an official Algerian source has said the militants included people from outside the African continent, as well as Arabs and Africans.

A security source said on Sunday that Algerian troops had found the bodies of 25 hostages, raising the number of hostages killed to 48 and the total number of deaths to at least 80. He said six militants were captured alive and troops were still searching for others.

A Japanese government source said the Algerian government had informed Tokyo that nine Japanese had been killed, the biggest toll so far among foreigners at the plant. Six Filipinos died and four were wounded, a government spokesman in Manila said.

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. The militants had used nine cars in Sonatrach colors and all with Libyan registration plates, it quoted unnamed security sources as saying.

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, also 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.

"We opened the door for negotiations with the Westerners and the Algerians, and granted them safety from the beginning of the operation, but one of the senior (Algerian) intelligence officials confirmed to us in a phone call that they will destroy the place with everyone in it," SITE quoted the statement as saying.

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 Anton Slodkowski in Tokyo, Balazs Koranyi in Oslo, William Maclean in Dubai, Estelle Shirbon and David Alexander in London, Brian Love in Paris and Daniel Flynn in Dakar; Writing by David Stamp; Editing by Giles Elgood)

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Algeria expects heavy hostage toll as West defends ally

ALGIERS/IN AMENAS, Algeria (Reuters) - Algeria said on Sunday it expected heavy hostage casualties after its troops ended a desert siege, but Western governments warned against criticizing tactics used by their vital ally in the struggle with Islamists across the Sahara.

An Algerian minister acknowledged the death toll would rise, and a private television station reported that 25 bodies had been found at the gas plant near the town of In Amenas after forces staged a final assault against the Islamist hostage-takers on Saturday.

Some Western governments had expressed frustration at not being informed of the Algerian authorities' plans to storm the complex. But France, which is fighting Islamist rebels across the desert in Mali, joined Britain in playing down any suggestion the response from Algeria - the main military power in the Sahara region - had been over-hasty or heavy-handed.

"What everyone needs to know is that these terrorists who attacked this gas plant are killers who pillage, rape, plunder and kill. The situation was unbearable," French Foreign Minister Laurent Fabius said.

"It's easy to say that this or that should have been done. The Algerian authorities took a decision and the toll is very high but I am a bit bothered ... when the impression is given that the Algerians are open to question. They had to deal with terrorists," he told Europe 1 radio in an interview.

The Islamists' pre-dawn attack on Wednesday has tested Algeria's relations with the outside world, exposed the vulnerability of multinational oil operations in the Sahara and pushed Islamist radicalism in northern Africa to centre stage.

Algeria, scarred by a civil war with Islamist insurgents in the 1990s which claimed 200,000 lives, had insisted there would be no negotiation in the face of terrorism.

Prime Minister David Cameron pointed out on Sunday its record in fighting Islamists. "Of course people will ask questions about the Algerian response to these events, but I would just say that the responsibility for these deaths lies squarely with the terrorists who launched this vicious and cowardly attack," he said in a television statement.

"We should recognize all that the Algerians have done to work with us and to help and coordinate with us. I'd like to thank them for that. We should also recognize that the Algerians too have seen lives lost among their soldiers."

France especially needs close cooperation from Algeria to have a chance of crushing Islamist rebels in northern Mali. Algiers has promised to shut its porous 1,000-km border with Mali to prevent al Qaeda-linked insurgents simply melting away into its empty desert expanses and rugged mountains.

Algeria's permission for France to use its airspace, confirmed by Fabius last week, also makes it much easier to establish direct supply lines for its troops which are trying to stop the Islamist rebels from taking the whole of Mali.

HIGHER DEATH TOLL

Algeria's Interior Ministry had reported on Saturday that 23 hostages and 32 militants were killed during the assaults launched by Algerian special forces to end the crisis, with 107 foreign hostages and 685 Algerian hostages freed.

However, Minister of Communication Mohamed Said said this would rise when final numbers were issued in the next few hours. "I am afraid unfortunately to say that the death toll will go up," Said was quoted as saying by the official APS news agency.

Details are only slowly emerging on what happened during the siege, which marked a serious escalation of unrest in northwestern Africa.

Private Algerian television station Ennahar said on Sunday that 25 bodies had been discovered at the Tiguentourine plant, adding that the operation to clear the base would last 48 hours.

The bodies were believed to belong to hostages executed by the militants, said Ennahar TV, which is known to have good sources within Algerian security.

In London, Cameron said three British nationals had been confirmed killed, while a further three Britons plus a British resident were also believed to be dead.

One Briton had already was confirmed killed when the gunmen seized the hostages at the plant near the Libyan border, run by Norway's Statoil along with Britain's BP and Algeria's state oil company.

MULTINATIONAL HOSTAGE-TAKERS

Said reported that the militants had six different nationalities and the operation to clear the plant of mines laid by the hostage-takers was still under way.

Believed to be among the 32 dead militants was their leader, Abdul Rahman al-Nigeri, a Nigerien close to al Qaeda-linked commander Mokhtar Belmokhtar, presumed mastermind of the raid.

One American has also been confirmed dead. Statoil said five of its workers, all Norwegian nationals, were still missing. Japanese and American workers are also unaccounted for.

On Saturday President Barack Obama said the United States was seeking a "fuller understanding" from Algerian authorities of what had happened, but added that "the blame for this tragedy rests with the terrorists who carried it out".

BP's chief executive Bob Dudley said on Saturday four of its 18 workers at the site were missing. The remaining 14 were safe.

The militant attack was one of the most audacious in recent years and almost certainly planned before French troops launched the operation in Mali this month to stem an advance by Islamist fighters.

Hundreds of hostages escaped on Thursday when the army launched a rescue operation, but many hostages were killed.

Before the Interior Ministry released its provisional death toll, an Algerian security source said eight Algerians and at least seven foreigners were among the victims, including two Japanese, two Britons and a French national.

The U.S. State Department said on Friday one American, Frederick Buttaccio, had died but gave no further details.

Mauritanian news agencies identified the field commander of the group that attacked the plant as Nigeri, a fighter from one of the Arab tribes in Niger who had joined the Algerian Salafist Group for Preaching and Combat (GSPC) in early-2005.

That group eventually joined up with al Qaeda to become Al Qaeda in the Islamic Maghreb (AQIM). It and allied groups are the targets of the French military operation in Mali.

The news agencies described him as "one of the closest people" to Belmokhtar, who fought in Afghanistan and then in Algeria's civil war of the 1990s. Nigeri was known as a man for "difficult missions", having carried out attacks in Mauritania, Mali and Niger.

The apparent ease with which the fighters swooped in from the dunes to take control of an important energy facility, which produces some 10 percent of the natural gas on which Algeria depends for its export income, has raised questions over the country's outwardly tough security measures.

Algerian officials said the attackers may have had inside help from among the hundreds of Algerians employed at the site.

Security in the half-dozen countries around the Sahara desert has long been a preoccupation of the West. Smugglers and militants have earned millions in ransom from kidnappings.

The most powerful Islamist groups operating in the Sahara were severely weakened by Algeria's secularist military in the civil war in the 1990s. But in the past two years the regional wing of al Qaeda gained fighters and arms as a result of the civil war in Libya, when arsenals were looted from Muammar Gaddafi's army.

(Additional reporting by Balazs Koranyi in Oslo, Estelle Shirbon and David Alexander in London, Brian Love in Paris, Daniel Flynn in Dakar; Writing by David Stamp; Editing by Alison Williams)

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Burned bodies found at besieged Algeria gas plant

ALGIERS/IN AMENAS, Algeria (Reuters) - Algerian special forces on Saturday found 15 burned bodies at a desert gas plant raided by al Qaeda-linked fighters, two days after the army launched an assault to free hostages being held there by the Islamists, a source familiar with the crisis said.

Efforts were underway to identify the bodies, the source told Reuters. It was not clear how they had died.

More than 20 foreigners were still captive or missing inside the plant as a standoff between the army and the Islamist gunmen - one of the biggest international hostage crises in decades - entered its fourth day, having thrust Saharan militancy to the top of the global agenda.

The number and fate of those involved - hostages alive or dead as well as fighters - has yet to be confirmed, with the Algerian government keeping officials from Western countries far from the site where their countrymen were in peril.

Reports have put the number of hostages killed at between 12 to 30, with possibly dozens of foreigners still unaccounted for, among them Norwegians, Japanese, Britons, Americans and others.

The U.S. State Department said on Friday one American, Frederick Buttaccio, had died but gave no further details. The French defense minister said he understood there were no more French workers among the hostages.

Two Norwegians were released overnight, leaving six unaccounted for, while Romania said three of its nationals had been freed. A number of Japanese engineering workers were still unaccounted for.

On Saturday, the Algerian military was holding the vast residential barracks at the In Amenas gas processing plant, while gunmen were holed up in the industrial plant itself with an undisclosed number of hostages, making it difficult for Algerian special forces to intervene.

The field commander of the Islamist group that attacked the plant is a veteran fighter from Niger called Abdul Rahman al-Nigeri, Mauritanian news agencies reported.

ARMY CORDON

The army is surrounding the plant, and helicopters are monitoring the area, Reuters reporters near the scene said. A cordon appeared to have been thrown around the plant at a distance of about 10 km (6 miles). Ambulances were on hand.

Scores of Westerners and hundreds of Algerian workers were inside the heavily fortified compound when it was seized before dawn on Wednesday by Islamist fighters who said they wanted a halt to a French military operation in neighboring Mali.

Hundreds escaped on Thursday when the army launched its operation, but many hostages were killed in the assault. Algerian forces destroyed four trucks holding hostages, according to the family of a Northern Irish engineer who escaped from a fifth truck and survived.

The Northern Irishman, Stephen McFaul, told his family the attackers had strapped Semtex plastic explosive to his neck, bound his hands and taped his mouth.

Leaders of Britain, Japan and other countries have expressed frustration that the assault was ordered without consultation and officials have grumbled at the lack of information. Many countries also withheld details about their missing citizens to avoid releasing information that might aid the captors.

France's defense minister, Jean-Yves Le Drian, declined to criticize the Algerian response to the crisis, however.

"The Algerian authorities are on their own soil and responding in the fashion they can. The overriding mission is to tackle the terrorists," he told France 3 television.

SECURITY SOURCE

An Algerian security source said 30 hostages, including at least seven Westerners, had been killed during Thursday's assault, along with at least 18 of their captors. Eight of the dead hostages were Algerian, with the nationalities of the rest of the dead still unclear, he said.

Two Japanese, two Britons and a French national were among the seven foreigners confirmed dead, the security source told Reuters. One British citizen was killed when the gunmen seized the hostages on Wednesday.

"(The army) is still trying to achieve a ‘peaceful outcome' before neutralizing the terrorist group that is holed up in the (facility) and freeing a group of hostages that is still being held," Algeria's state news agency APS said on Friday, quoting a security source.

APS put the total number of dead hostages at 12, including both foreigners and locals.

The base was home to foreign workers from Britain's BP, Norway's Statoil, Japanese engineering firm JGC Corp and others.

Norway says eight Norwegians are still missing. JGC said it was missing 10 staff. Britain and the United States have said they have citizens unaccounted for but have not said how many.

The Algerian security source said 100 foreigners had been freed but 32 were still unaccounted for.

Norway's Foreign Minister Espen Barth Eide said that based on information from Algerian authorities, "there is hope that the operation could be nearing the end."

A U.S. official said on Friday a U.S. flight carrying wounded people from many countries had left Algeria, without giving further details. Norway said it was sending a specially equipped medevac plane to the area.

The attack has plunged international capitals into crisis mode and is a serious escalation of unrest in northwestern Africa, where French forces have been in Mali since last week fighting an Islamist takeover of Timbuktu and other towns.

MULTINATIONAL INSURGENCY

Algerian commanders said they moved in on Thursday about 30 hours after the siege began, because the gunmen had demanded to be allowed to take their captives abroad.

A French hostage employed by a French catering company said he had hidden in his room for 40 hours under the bed before he was rescued by Algerian troops, relying on Algerian employees to smuggle him food with a password.

"I put boards up pretty much all round," Alexandre Berceaux told Europe 1 radio. "I didn't know how long I was going to stay there ... I was afraid. I could see myself already ending up in a pine box."

The captors said their attack was a response to the French military offensive in neighboring Mali. However, some U.S. and European officials say the elaborate raid probably required too much planning to have been organized from scratch in the single week since France first launched its strikes.

Paris says the incident proves its decision to fight Islamists in neighboring Mali was necessary.

Security in the half-dozen countries around the Sahara desert has long been a preoccupation of the West. Smugglers and militants have earned millions in ransom from kidnappings.

The most powerful Islamist groups operating in the Sahara were severely weakened by Algeria's secularist military in a civil war in the 1990s. But in the past two years the regional wing of Al Qaeda gained fighters and arms as a result of the civil war in Libya, when arsenals were looted from Muammar Gaddafi's army.

Al Qaeda-linked fighters, many with roots in Algeria and Libya, took control of northern Mali last year.

The apparent ease with which the fighters swooped in from the dunes to take control of an important energy facility, which produces some 10 percent of the natural gas on which Algeria depends for its export income, has raised questions over the value of outwardly tough Algerian security measures.

Algerian officials said the attackers may have had inside help from among the hundreds of Algerians employed at the site.

U.S. Defense Secretary Leon Panetta said those responsible would be hunted down: "Terrorists should be on notice that they will find no sanctuary, no refuge, not in Algeria, not in North Africa, not anywhere. ... Those who would wantonly attack our country and our people will have no place to hide."

(Additional reporting by Ali Abdelatti in Cairo, Eamonn Mallie in Belfast, Gwladys Fouche in Oslo, Mohammed Abbas in London, Padraic Halpin and Conor Humphries in Dublin, Andrew Quinn and David Alexander in Washington, Brian Love in Paris; Editing by Giles Elgood and Sonya Hepinstall)

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Sahara hostage holders make new threat

ALGIERS (Reuters) - At least 18 foreign hostages were unaccounted for on Friday and their al-Qaeda-linked captors threatened to attack other energy installations after Algerian forces stormed a desert gas complex to free hundreds of captives, resulting in dozens of deaths.

With Western leaders clamoring for details of a raid they said Algeria had launched on Thursday without consulting them, a local source said the sprawling compound was still surrounded by Algerian special forces and some hostages remained inside.

Thirty hostages, including several Westerners, were killed during the assault, the source said, along with at least 18 of their captors, who said they had taken the site as retaliation for French intervention against Islamists in neighboring Mali.

The crisis represents a serious escalation of unrest in northwestern Africa, where French forces have been in Mali since last week fighting an Islamist takeover of Timbuktu and other towns in the north, and could devastate OPEC member Algeria's oil industry, just as it recovers from a civil war in the 1990s.

French Prime Minister Jean-Marc Ayrault said the Algerian government had told him its operation was still going on at mid-morning on Friday. "The death of several hostages is appalling," he told journalists.

Two Japanese, two Britons and a French national were among at least seven foreigners killed, the Algerian source said.

Ten Japanese were among those still unaccounted for on Friday, their Japanese employer said, while Norwegian energy company Statoil, which runs the Tigantourine gas field with Britain's BP and Algeria's national oil company, said eight Norwegian employees were still missing.

Some British workers also appeared to be unaccounted for, though Prime Minister David Cameron said only that fewer than 30 Britons were still at risk as the operation continued.

Washington has said a number of Americans were among the hostages, without giving details, and the local source said a U.S. aircraft landed nearby on Friday to evacuate Americans.

Underlining the view of African and Western leaders that they face a multinational Islamist insurgency across the Sahara - the source said only two of 11 militants whose bodies were found on Thursday were Algerian, including the squad's leader.

The 11 bodies of gunmen found on Thursday comprised three Egyptians, two Tunisians, two Libyans, a Malian and a Frenchman - all assumed to have been hostage-takers - were found, the security source said. Algeria state news agency APS said the group had planned to take the hostages to Mali. On Friday, the source said 18 militants had now been found dead.

The plant was heavily fortified, with security, controlled access and an army camp with hundreds of armed personnel between the accommodation and processing plant, Andy Coward Honeywell, who worked there in 2009, told the BBC.

Defense Secretary Leon Panetta said militants who attacked the United States and its citizens would be run to ground: "Terrorists should be on notice that they will find no sanctuary, no refuge, not in Algeria, not in North Africa, not anywhere," he said in London. "Those who would wantonly attack our country and our people will have no place to hide."

MALI WOES

The crisis posed a serious dilemma for former colonial power Paris and its allies as French troops attacked the hostage-takers' al Qaeda allies in Mali, another former colony.

The desert fighters have proved to be better trained and equipped than France had anticipated, diplomats told Reuters at the United Nations, which said 400,000 people could flee Mali to neighboring countries in the coming months.

In Algeria, the kidnappers warned locals to stay away from foreign companies' installations in the oil and gas producing state, threatening more attacks, Mauritania's news agency ANI said, citing a spokesman for the group.

Algerian workers form the backbone of an oil and gas industry that has attracted international firms in recent years partly because of military-style security. The kidnapping, storming and further threat cast a deep shadow over its future.

An Irish engineer who survived said he saw four jeeps full of hostages blown up by Algerian troops whose commanders said they moved in about 30 hours after the siege began because the gunmen had demanded to be allowed to take their captives abroad.

Eight of the dead hostages were Algerian. The nationalities of the rest, and the perhaps dozens more who escaped, were unclear. Some 600 Algerian workers, less well guarded, survived.

A French hostage employed by a French catering company said Algerian military forces had found some British hostages hiding in a roof space and were combing the sprawling In Amenas site for others when he was escorted away by the military.

"I hid in my room for nearly 40 hours, under the bed. I put boards up pretty much all round," Alexandre Berceaux told Europe 1 raid. "I didn't know how long I was going to stay there ... I was afraid. I could see myself already ending up in a pine box."

Norwegian Foreign Minister Espen Barth Eide said his country still did not know the fate of eight Norwegians who had been working at the site. "As we understand it, the operation is still ongoing," he told Britain's BBC broadcaster.

Japanese Prime Minister Shinzo Abe has cancelled part of his trip in southeast Asia, his first overseas trip since taking office, and will fly home due to the hostage crisis, Japan's senior government spokesman said on Friday.

"The action of Algerian forces was regrettable," said Japan's Chief Cabinet Secretary Yoshihide Suga, adding Tokyo had not been informed of the operation in advance.

Their governments say Americans, Romanians and an Austrian have also been captured by the militants, who have demanded France end its week-old offensive in Mali.

The group had claimed to have dozens of guerrillas on site, and it was unclear whether any militants had managed to escape.

The overall commander, Algerian officials said, was Mokhtar Belmokhtar, a veteran of Afghanistan in the 1980s and Algeria's bloody civil war of the 1990s. He appears not to have been present and has now risen in stature among a host of Saharan Islamists, flush with arms and fighters from chaotic Libya, whom Western powers fear could spread violence far beyond the desert.

Algerian security specialist Anis Rahmani, author of several books on terrorism and editor of Ennahar daily, told Reuters about 70 militants were involved from two groups, Belmokhtar's "Those who sign in blood", who travelled from Libya, and the lesser known "Movement of the Islamic Youth in the South".

"They were carrying heavy weapons including rifles used by the Libyan army during (Muammar) Gadaffi's rule," he said. "They also had rocket-propelled grenades and machineguns."

"NO TO BLACKMAIL"

Algeria's government made clear it is implacably at odds with Islamist guerrillas who remain at large in the south, years after the civil war through the 1990s in which some 200,000 people died. Communication Minister Mohamed Said repeated their refusal ever to negotiate with hostage-takers.

"We say that in the face of terrorism, yesterday as today as tomorrow, there will be no negotiation, no blackmail, no respite in the struggle against terrorism," he told APS news agency.

British Prime Minister Cameron, who warned people to prepare for bad news and who cancelled a major policy speech on Friday to deal with the situation, said through a spokesman that he would have liked Algeria to have consulted before the raid.

A Briton and an Algerian were also killed on Wednesday.

French hostage Berceaux said: "When Algerian solders ... came for me, I didn't even know it was over. They were with some of my colleagues, otherwise I'd never have opened the door."

U.S. officials had no clear information on the fate of Americans, though a U.S. military drone had flown over the area. Washington, like its European allies, has endorsed France's move to protect the Malian capital by mounting air strikes last week and now sending 1,400 ground troops to attack Islamist rebels.

A U.S. official said on Thursday it would provide transport aircraft to help France with a mission whose vital importance, President Francois Hollande said, was demonstrated by the attack in Algeria. Some fear, however, that going on the offensive in the remote region could provoke more bloodshed closer to home.

The apparent ease with which the fighters swooped in from the dunes to take control of an important energy facility, which produces some 10 percent of the natural gas on which Algeria depends for its export income, has raised questions over the value of outwardly tough security measures.

(Additional reporting by Ali Abdelatti in Cairo, Eamonn Mallie in Belfast, Gwladys Fouche in Oslo, Mohammed Abbas in London and Padraic Halpin and Conor Humprhies in Dublin; Writing by Philippa Fletcher; Editing by Alastair Macdonald)

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Many dead at site of Algerian kidnapping

ALGIERS (Reuters) - Many people were killed when Algerian forces opened fire on a vehicle at a remote gas plant where gunmen were holding dozens of Western hostages, a resident of the locality and Arab news reports said on Thursday.

The resident, who asked not to be identified, said there were many bodies at the scene. He did not give firm numbers of the dead or say whether they were kidnappers, hostages or both.

Mauritania's ANI news agency, which has been in constant contact with the kidnappers, reported that 34 of the captives and 15 of the captors had been killed when government forces fired from helicopters while the kidnappers were trying to move some of their prisoners.

Qatar-based Al Jazeera television carried a similar report. Those details could not be immediately confirmed.

ANI quoted a spokesman for the kidnappers as saying they would kill the rest of their captives if the army approached.

Governments around the world were holding emergency meetings to respond to one of the biggest international hostage crises in decades, which sharply raised the stakes in a week-old French campaign against al Qaeda-linked rebels in the Sahara.

An Algerian security source earlier said 25 foreign hostages had escaped the besieged compound, including two Japanese.

The source told Reuters the captors had demanded safe passage out with their prisoners. Algeria has refused to negotiate with what it says is a band of about 20 fighters.

A group calling itself the "Battalion of Blood" says it seized 41 foreigners, including Americans, Japanese and Europeans, after storming the gas pumping station and its employee barracks before dawn on Wednesday.

The attackers have demanded an end to the French military campaign in Mali, where hundreds of French paratroopers and marines are launching a ground offensive against rebels a week after Paris began firing on militants from the air.

(Reporting by Lamine Chikhi; Writing by Peter Graff; Editing by Giles Elgood)

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Syrian army on offensive in Aleppo after university blast

BEIRUT (Reuters) - Syrian armed forces launched a renewed offensive in the northern city of Aleppo on Wednesday, state media said, a day after 87 people were killed in explosions at the city's university.

The state news agency SANA said the military had killed dozens of "terrorists" - a term Damascus uses for rebels trying to overthrow President Bashar al-Assad - in the new fighting.

Reuters cannot independently verify reports due to media restrictions in Syria.

"The Armed Forces carried out several special operations against the mercenary terrorists in Aleppo and its countryside, inflicting heavy losses upon them in several areas," SANA said.

Aleppo is split roughly in half between government and rebel forces. SANA said dozens of "terrorists" were killed in the rebel strongholds of Sukari, Bab al-Hadeed and Bustan al-Qasr.

Government forces also killed militants in al-Laramon, a area of Aleppo from which Damascus says two rockets were fired into the University of Aleppo on Tuesday, it added.

If confirmed, the government's report of a rocket attack would suggest rebels in the area had been able to obtain and deploy more powerful weapons than previously used.

The Syrian Observatory for Human Rights, a Britain-based monitoring group, said 87 people were killed and dozens wounded in the explosions, but it could not identify the source of the blasts. It said the toll could rise to more than 100 as there were still body parts that were unaccounted for.

State television showed a body lying on the street and burning cars. An entire facade of a multi-story university building had crumbled and cars were overturned. An interior shot of a corridor showed that the ceiling had caved in.

Amateur video footage showed students carrying books out of the university after one of the explosions, walking quickly away from rising smoke. The camera then shakes to the sound of another explosion and people begin to run.

Syria has been plunged into bloodshed since a violent government crackdown in early 2011 on peaceful demonstrations for democratic reform which turned the unrest into an armed insurgency bent on overthrowing Assad.

Each side in the 22-month-old conflict blamed the other for Tuesday's blasts at the university, located in a government-held area of Syria's most populous city.

Some activists in Aleppo said a government air strike caused the explosions, while state television accused terrorists of firing two rockets at the university. A rebel fighter said the blasts appeared to have been caused by surface-to-surface missiles.

The nearest rebel-controlled area, Bustan al-Qasr, is more than a mile away from the university.

The Observatory said rebel sources on the ground reported they were fighting with government forces in the early hours of Wednesday around Bustan al-Qasr, implying a renewed push by government forces to expel the insurgents.

(Reporting by Oliver Holmes; Editing by Jon Boyle)

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France steps up Mali operation, Africans try to catch up

BAMAKO (Reuters) - France hit Islamist rebels in Mali with fresh air strikes and deployed armored cars on Tuesday, stepping up its intervention in the West African state as regional allies struggled to accelerate their plans to send in troops.

Paris has poured hundreds of soldiers into Mali and carried out air raids since Friday in the northern half of the country, which was seized last year by an Islamist alliance combining al Qaeda's north African wing AQIM with Mali's home-grown MUJWA and Ansar Dine rebel groups.

Western and regional states fear the insurgents will use Mali's north, a vast and inhospitable area of desert and rugged mountains the size of Texas, as a base for attacks on the African continent and also in Europe.

West African defense chiefs were meeting in the Malian capital Bamako on Tuesday to approve plans for speeding up the deployment of 3,300 regional troops, foreseen in a United Nation-backed intervention plan to be led by Africans. France sent its forces into Mali last week to block a surprise southwards push by the rebels.

Speaking during a visit to the United Arab Emirates, President Francois Hollande said French forces carried out further air strikes overnight in Mali "which hit their targets".

"We will continue the deployment of forces on the ground and in the air," Hollande said. "We have 750 troops deployed at the moment and that will keep increasing so that as quickly as possible we can hand over to the Africans."

A column of French armored vehicles rumbled into the dusty riverside capital overnight. The vehicles, which had driven up from a French base in Ivory Coast, were expected to move northwards eventually towards the combat zone.

France's defense ministry has said it plans to deploy 2,500 soldiers in its former colony to bolster the Malian army and work with the intervention force provided by the ECOWAS grouping of West African states.

Hollande saw the ECOWAS deployment taking "a good week".

There are some concerns that a delay in following up on the French air bombardments of Islamist bases and fuel depots with a ground offensive could allow the insurgents to slip away into the desert and mountains, regroup and counter-attack.

The rebels, who French officials say are mobile and well-armed, have shown they can hit back, dislodging government forces from Diabaly, 350 km (220 miles) from Bamako on Monday.

Foreign Minister Laurent Fabius, accompanying Hollande, said the offensive against the Malian rebels could take some time, and the current French level of involvement could last weeks.

Gulf Arab states would also help the Mali campaign, Fabius added, and there would be a meeting of donors for the operation most likely in Addis Ababa at the end of January.

QUESTIONS OVER READINESS

ECOWAS mission head in Bamako Aboudou Toure Cheaka said the West African troops would be on the ground in a week. Their immediate mission would be to help stop the rebel advance while preparations for a full intervention plan continued.

The original timetable for the 3,300-strong U.N.-sanctioned African force - to be backed by western logistics, money and intelligence services - did not initially foresee full deployment before September due to logistical constraints.

Senegal, Burkina Faso, Niger, Nigeria and Guinea have all offered troops. But regional powerhouse Nigeria, which is due to lead the mission, has cautioned that even if some troops arrive in Mali soon, their training and equipping will take more time.

Nigerian President Goodluck Jonathan told foreign diplomats in Abuja late on Monday that the Nigerian contingent would be in Mali before next week. "We can no longer surrender any part of the globe to extremism," he said.

But Sub-Saharan Africa's top oil producer, which already has hundreds of peacekeepers in Sudan's Darfur and is fighting a bloody and difficult insurgency at home against Islamist sect Boko Haram, could struggle to deliver on its troop commitment.

One senior government adviser in Nigeria said the Mali deployment was stretching the country's military.

"The whole thing's a mess. We don't have any troops with experience of those extreme conditions, even of how to keep all that sand from ruining your equipment. And we're facing battle-hardened guys who live in those dunes," the adviser said, asking not to be named because of the sensitivity of the subject.

Security experts have warned that the multinational intervention in Mali, couched in terms of a campaign by governments against "terrorism", could provoke a jihadist backlash against France and the West, and African allies.

U.S. officials have warned of links between AQIM, Boko Haram in Nigeria and al Shabaab Islamic militants fighting in Somalia.

Al Shabaab, which foiled a French effort at the weekend to rescue a French secret agent it was holding hostage, urged Muslims around the world to rise up against what it called "Christian" attacks against Islam.

"Our brothers in Mali, show patience and tolerance and you will win. War planes never liberate a land," Sheikh Ali Mohamud Rage, al Shabaab's spokesman, said in an audio statement posted on the rebel-run www.somaliamemo.net website

The ECOWAS deployment plan is being fast-tracked following a plea for help by Mali's government after mobile columns of Islamist fighters threatened last week the central Malian garrison towns of Mopti and Sevare, with its key airport.

U.N.: THOUSANDS FLEE FIGHTING

French Prime Minister Jean-Marc Ayrault said France's goals were to stop the rebels, to "safeguard the existence of Mali".

U.S. officials said Washington was sharing information with French forces in Mali and considering providing logistics, surveillance and airlift capability.

"We have made a commitment that al Qaeda is not going to find anyplace to hide," U.S. Defense Secretary Leon Panetta told reporters as he began a visit to Europe.

French intervention has raised the risk for eight French hostages held by al Qaeda allies in the Sahara and for 30,000 French expatriates living in neighboring, mostly Muslim states. Concerned about reprisals at home, France has tightened security at public buildings and on public transport.

The U.N. said an estimated 30,000 people had fled the latest fighting in Mali, joining more than 200,000 already displaced.

U.N. Secretary-General Ban Ki-moon welcomed on Monday the French-led military intervention in Mali and voiced the hope that it would halt the Islamist assault.

Amnesty International said at least six civilians were killed in recent fighting in the town of Konna, where French aircraft had earlier bombarded rebel positions, and called on both sides to spare non-combatants.

France, which has repeatedly said it has abandoned its role as the policeman of its former African colonies, convened a U.N. Security Council meeting Monday to discuss the crisis.

French U.N. Ambassador Gerard Araud told reporters after the meeting that the United States, Canada, Belgium, Denmark and Germany had also offered logistical support for France's Mali operation.

(Additional reporting by Elizabeth Pineau and Raissa Kasolowsky in Abu Dhabi; Felix Onuah in Abuja and Tim Cocks in Lagos; Abdi Sheikh in Mogadishu; Michelle Nichols Louis Charbonneau at the United Nations; Richard Valdmanis in Dakar; Writing by Pascal Fletcher; editing by David Stamp)

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Decision on immunity for U.S. troops by year-end: Karzai

KABUL (Reuters) - A decision on immunity for U.S. troops staying in Afghanistan after the 2014 planned withdrawal will be made by the end of the year, Afghan President Hamid Karzai said on Monday.

"The issue of immunity is under discussion (and) it is going to take eight to nine months before we reach agreement," Karzai told a news conference in the capital, Kabul, after returning from meetings with U.S. President Barack Obama in Washington.

The Afghan government rejected an initial U.S. proposal regarding the question of immunity and a second round of negotiations will take place this year in Kabul, he said.

Those negotiations could involve Afghanistan's Loya Jirga, a "grand assembly" of political and community leaders convened for issues of national importance, he added.

When asked if security would deteriorate in Afghanistan after the withdrawal of the NATO-led force, Karzai replied: "By no means... Afghanistan will be more secure and a better place."

The Obama administration has been considering a residual force of between 3,000 and 9,000 troops in Afghanistan to conduct counterterrorism operations while providing training and assistance for Afghan forces. But the administration said last week it did not rule out a complete withdrawal after 2014.

The United States is insisting on immunity from prosecution for any U.S. troops that remain.

(Reporting By Hamid Shalizi, writing by Amie Ferris-Rotman and Dylan Welch; Editng by Robert Birsel)

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France bombs Mali rebels as more troops arrive in Bamako

BAMAKO/PARIS (Reuters) - French fighter jets bombed Islamist rebels in Mali for a third day on Sunday as Paris poured more troops into the capital Bamako, awaiting the arrival of a West African force to dislodge al Qaeda-linked insurgents from the country's north.

French Defence Minister Jean-Yves Le Drian said France's dramatic intervention on Friday to bomb a convoy of heavily armed Islamist fighters sweeping southwards had stopped them from seizing Mali's capital Bamako within days.

Western countries fear Islamists could use Mali as a base for attacks on the West, forming a link with al Qaeda militants in Yemen, Somalia and North Africa.

Le Drian said former colonial power France was carrying out continuous bombing raids against the alliance of rebel groups, which seized the country's vast desert north in April.

"There are raids going on now: there were some last night, and there will be more tomorrow," Le Drian told French television. "The president is totally determined that we must eradicate these terrorists who threaten the security of Mali, our own country and Europe."

Residents said French aircraft bombed the northern town of Gao, and a Malian rebel spokesman said they bombed targets in the towns of Lere and Douentza.

Le Drian said France was deploying a further contingent of 80 soldiers to Mali on Sunday, bring the total to 550 soldiers , split between Bamako and the town of Mopti, some 500 km (300 miles) north. State-of-the-art Rafale fighter jets would be dispatched to reinforce the operation on Sunday, he said.

A Reuters cameraman reported seeing on Sunday more than 100 French troops disembarking from a military cargo plane at Bamako airport, just on the outskirts of the capital.

Bamako itself was calm on Sunday, with the sun streaking through the dust enveloping the city as the seasonal Harmattan wind blew from the Sahara. Some cars drove around with French flags draped from the windows to celebrate Paris's intervention.

Hours after opening one front against al Qaeda-linked Islamists, France mounted a commando raid to free a French hostage in Somalia held by al Shabaab militants allied to al Qaeda, but failed to stop him being killed along with a French commando.

A French pilot was killed on Friday when rebels in Mali shot down his helicopter.

President Francois Hollande has made it clear that France's aim in Mali is to support the deployment of a West African mission to retake the north, endorsed by the United Nations, the European Union and the United States.

The 15-nation West African bloc ECOWAS convened a summit for Saturday in Ivory Coast to discuss the military campaign.

With Paris pressing West African nations to deploy troops quickly, Ivory Coast President Alassane Ouattara, who holds the rotating ECOWAS chairmanship, has kick-started the operation to deploy some 3,300 African soldiers.

Ouattara was himself installed in power with French military backing in 2011 after a brief civil war triggered by former president Laurent Gbagbo's refusal to step aside after losing a late 2010 election.

"The troops will start arriving in Bamako today and tomorrow," Ali Coulibaly, Ivory Coast's African Integration Minister, said. "They will be convoyed to the front at Sevare."

HOUSE-TO-HOUSE SEARCHES

Under cover from French fighter planes and attack helicopters on Friday, Malian troops drove the Islamists out of the strategic central town of Konna, which they had seized a day earlier. A senior Malian army official said more than 100 rebel fighters had been killed.

Military analysts expressed doubt, however, that this was the start of a swift operation to retake the whole of northern Mali - a harsh, sparsely populated terrain the size of France - as neither equipment nor ground troops were ready.

In Nigeria, which will lead the ECOWAS force, a military official who asked not to be identified said it would take time to train and equip the troops.

In Konna, calm returned after three nights of combat.

"Soldiers are patrolling the streets and have encircled the town," one resident, Madame Coulibaly, told Reuters by phone. "They are searching houses for arms or hidden Islamists."

Another inhabitant said the army set up roadblocks along the route north from Sevare to Konna and was checking for rebels. President Diouncounda Traore declared a state of emergency on Friday giving the military sweeping powers to carry out searches and shut down parts of the country.

"The army is in Konna ... securing the town and to make sure it is safe," army spokesman Lieutenant Colonel Diarran Kone said.

A resident in the northern city of Gao, one of the Islamists' strongholds, had reported scores of rebel fighters were retreating northward in pickup trucks on Saturday. In Bamako, some civilians tried to contribute to the war effort.

"We are very proud and relieved that the army was able to drive the jihadists out of Konna. We hope it will not end there that is why I'm helping in my own way," said civil servant Ibrahima Kalossi, 32, one of over 40 people who queued to donate blood for wounded soldiers.

Concerned about reprisals on French soil, Hollande instructed Prime Minister Jean-Marc Ayrault to tighten security in France at public buildings and on public transport.

France advised its 6,000 citizens in Mali to leave. Thousands more French live across West Africa, particularly in Senegal and Ivory Coast.

Hollande's intervention in Mali could endanger eight French nationals being held by Islamists in the Sahara. A spokesman for one of Mali's rebel groups, Ansar Dine, said on Saturday there would be repercussions.

"There are consequences, not only for French hostages, but also for all French citizens, wherever they find themselves in the Muslim world," Sanda Ould Boumama told Reuters. "The hostages are facing death."

(Additional reporting Adama Diarra, Tiemoko Diallo and Rainer Schwenzfeier in Bamako, Joe Bavier in Abidjan and Leila Aboud in Paris; Writing by Daniel Flynn; Editing by Alison Williams)

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Obama, Karzai accelerate end of U.S. combat role in Afghanistan

WASHINGTON (Reuters) - President Barack Obama and Afghan President Hamid Karzai agreed on Friday to speed up the handover of combat operations in Afghanistan to Afghan forces, raising the prospect of an accelerated U.S. withdrawal from the country and underscoring Obama's determination to wind down a long, unpopular war.

Signaling a narrowing of differences, Karzai appeared to give ground in talks at the White House on U.S. demands for immunity from prosecution for any American troops who stay in Afghanistan beyond 2014, a concession that could allow Obama to keep at least a small residual force there.

Both leaders also threw their support behind tentative Afghan reconciliation efforts with Taliban insurgents, endorsing the establishment of a Taliban political office in Qatar in hopes of bringing insurgents to inter-Afghan talks.

Outwardly, at least, the meeting appeared to be something of a success for both men, who need to show their vastly different publics they are making progress in their goals for Afghanistan. There were no signs of the friction that has frequently marked Obama's relations with Karzai.

Karzai's visit came amid stepped-up deliberations in Washington over the size and scope of the U.S. military role in Afghanistan once the NATO-led combat mission concludes at the end of 2014.

"By the end of next year, 2014, the transition will be complete," Obama said at a news conference with Karzai standing at his side. "Afghans will have full responsibility for their security, and this war will come to a responsible end."

The Obama administration has been considering a residual force of between 3,000 and 9,000 troops - far fewer than some U.S. commanders propose - to conduct counterterrorism operations and to train and assist Afghan forces.

A top Obama aide said this week that the administration does not rule out a complete withdrawal after 2014, a move that some experts say would be disastrous for the weak Afghan central government and its fledgling security apparatus.

Obama on Friday left open the possibility of that so-called "zero option" when he several times used the word "if" to suggest that a post-2014 U.S. presence was far from guaranteed.

Insisting that Afghan forces were "stepping up" faster than expected, Obama said Afghan troops would take over the lead in combat missions across the country this spring, rather than waiting until the summer as originally planned. NATO troops will then assume a "support role," he said.

"It will be a historic moment and another step toward full Afghan sovereignty," Obama said.

Obama said final decisions on this year's troop cuts and the post-2014 U.S. military role were still months away, but his comments suggested he favors a stepped-up withdrawal timetable.

There are some 66,000 U.S. troops currently in Afghanistan. Washington's NATO allies have been steadily reducing their troop numbers as well despite doubts about the ability of Afghan forces to shoulder full responsibility for security.

'WAR OF NECESSITY'

Karzai voiced satisfaction over Obama's agreement to turn over control of detention centers to Afghan authorities, a source of dispute between their countries, although the White House released no details of the accord on that subject.

Obama once called Afghanistan a "war of necessity." But he is heading into a second term looking for an orderly way out of the conflict, which was sparked by the September 11, 2001, attacks on the United States by an al Qaeda network harbored by Afghanistan's Taliban rulers.

He faces the challenge of pressing ahead with his re-election pledge to continue winding down the war while preparing the Afghan government to prevent a slide into chaos and a Taliban resurgence once most NATO forces are gone.

Former Senator Chuck Hagel, Obama's nominee to become defense secretary, is likely to favor a sizable troop reduction.

Karzai, meanwhile, is eager to show he is working to ensure Afghans regain full control of their territory after a foreign military presence of more than 11 years.

Asked whether the cost of the war in lives and money was worth it, Obama said: "We achieved our central goal ... or have come very close to achieving our central goal, which is to de-capacitate al Qaeda, to dismantle them, to make sure that they can't attack us again."

He added: "Have we achieved everything that some might have imagined us achieving in the best of scenarios? Probably not. This is a human enterprise, and you fall short of the ideal."

Obama made clear that unless the Afghan government agrees to legal immunity for U.S. troops, he would withdraw them all after 2014 - as happened in Iraq at the end of 2011.

Karzai, who criticized NATO over civilian deaths, said that with Obama's agreement to transfer detention centers and the planned withdrawal of U.S. forces from Afghan villages, "I can go to the Afghan people and argue for immunity" in a bilateral security pact being negotiated.

Addressing students at Georgetown University later in the day, the Afghan leader predicted with certainty that the United States would keep a limited number of troops in Afghanistan after 2014, in part to battle al Qaeda and its affiliates.

"One of the reasons the United States will continue a limited presence in Afghanistan after 2014 in certain facilities in Afghanistan is because we have decided together to continue to fight against al Qaeda," Karzai said. "So there will be no respite in that."

Many of Obama's Republican opponents have criticized him for setting a withdrawal timetable and accuse him of undercutting the U.S. mission by reducing troop numbers too quickly.

Karzai and his U.S. partners have not always seen eye to eye, even though the American military has been crucial to preventing insurgent attempts to oust him.

In October, Karzai accused Washington of playing a double game by fighting the war in Afghan villages instead of going after insurgents who cross the border from neighboring Pakistan.

In Friday's news conference, Karzai did not back down from his previous comments that foreigners were responsible for some of the official corruption critics say is rampant in Afghanistan. But he acknowledged: "There is corruption in the Afghan government that we are fighting against."

Adding to tensions has been a rash of deadly "insider" attacks by Afghan soldiers and police against NATO-led troops training or working with them. U.S. forces have also been involved in a series of incidents that enraged Afghans, including burning Korans, which touched off days of rioting.

(Additional reporting by Roberta Rampton, Mark Felsenthal, Jeff Mason, Phil Stewart, Tabassum Zakaria, David Alexander; Editing by Warren Strobel and Will Dunham)

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Shi'ite leader challenges Pakistan army chief over attacks

QUETTA, Pakistan (Reuters) - In a rare challenge, a Shi'ite Muslim leader publicly criticized Pakistani military chief General Ashfaq Kayani over security in the country on Friday after bombings targeting the minority sect killed 118 people.

The criticism of Kayani, arguably the most powerful man in the South Asian state, highlighted Shi'ite frustrations with Pakistan's failure to contain Sunni Muslim militant groups who have vowed to wipe out Shi'ites.

"I ask the army chief: What have you done with these extra three years you got (in office)? What did you give us except more death?" Maulana Amin Shaheedi, who heads a national council of Shi'ite organizations, told a news conference.

Most of Thursday's deaths were caused by twin attacks aimed Shi'ites in the southwestern city of Quetta, near the Afghan border, where members of the minority have long accused the state of turning a blind eye to Sunni death squads.

Shi'ite leaders were so outraged at the latest bloodshed that they called for the military to take control of Quetta to shield them and said they would not allow the 85 victims of twin bomb attacks to be buried until their demands were met.

The burials had been scheduled to take place after Friday prayers but the bodies would remain in place until Shi'ites had received promises of protection.

Shaheedi said scores of bodies were still lying on a road. "They will not be buried until the army comes into Quetta."

Violence against Pakistani Shi'ite is rising and some communities are living in a state of siege, a human rights group said on Friday.

"Last year was the bloodiest year for Shias in living memory," said Ali Dayan Hasan of Human Rights Watch. "More than 400 were killed and if yesterday's attack is any indication, it's just going to get worse."

A suicide bomber first targeted a snooker club in Quetta. A car bomb blew up nearby 10 minutes later after police and rescuers had arrived.

In all, 85 people were killed and 121 wounded. Nine police and 20 rescue workers were among the dead.

"It was like doomsday. Bodies were lying everywhere," said police officer Mir Zubair Mehmood.

The banned Sunni group Lashkar-e-Jangvi (LeJ) claimed responsibility for the attack in what is a predominantly Shi'ite neighborhood where the residents are ethnic Hazaras, Shi'ites who first migrated from Afghanistan in the 19th century.

While U.S. intelligence agencies have focused on al Qaeda and the Taliban, Pakistani intelligence officials say LeJ is emerging as a graver threat to Pakistan, a nuclear-armed, strategic ally of the United States.

It has stepped up attacks against Shi'ites across the country but has zeroed in on members of the sect who live in resource-rich Baluchistan province, of which Quetta is capital.

The paramilitary Frontier Corps is largely responsible for security in Baluchistan province but Shi'ites say it is unable or unwilling to protect them from the LeJ.

"STATE OF SIEGE"

The LeJ wants to impose a Sunni theocracy by stoking Sunni-Shi'ite violence. It bombs religious processions and shoots civilians in the type of attacks that pushed countries like Iraq towards civil war.

The latest attacks prompted an outpouring of grief, rage and fear among Shi'ites, many of whom have concluded that the state has left them at the mercy of the LeJ and other extremist groups who believe they are non-Muslims.

"The LeJ operates under one front or the other, and its activists go around openly shouting 'infidel, infidel, Shi'ite infidel' and 'death to Shi'ites' in the streets of Quetta and outside our mosques," said Syed Dawwod Agha, a top official with the Baluchistan Shi'ite Conference.

"We have become a community of grave diggers. We are so used to death now that we always have shrouds ready."

The roughly 500,000-strong Hazara people in Quetta, who speak a Persian dialect, have distinct features and are an easy target, said Dayan of Human Rights Watch.

"They live in a state of siege. Stepping out of the ghetto means risking death," said Dayan. "Everyone has failed them - the security services, the government, the judiciary."

Earlier on Thursday, a separate bomb killed 11 people in Quetta's main market.

The United Baloch Army claimed responsibility for that blast. The group is one of several fighting for independence for Baluchistan, an arid, impoverished region with substantial gas, copper and gold reserves.

Baluchistan constitutes just less than half of Pakistan's territory and is home to about 8 million of the total population of 180 million.

In another attack on Thursday, in Mingora, the largest city in the Swat valley in the northwest, at least 22 people were killed when an explosion targeted a public gathering of residents who had come to listen to a religious leader.

No one claimed responsibility for that bombing. Swat has been under army rule since a military offensive ejected Pakistani Taliban militants in 2009.

The LeJ has had historically close ties to elements in the security forces, who see the group as an ally in any potential war with neighboring India. Security forces deny such links.

In a measure of the outrage, several Pakistani social media users posted Facebook comments urging the U.S. to expand its covert programme of drone warfare beyond Taliban strongholds on the Afghan border to target LeJ leaders in Baluchistan.

Among the dead in Quetta was Khudi Ali, a young activist who often wore a T-shirt with fake bloodstains during protests against the rising violence against Shi'ites.

Ali's Twitter profile said: "I am born to fight for human rights and peace."

(Additional reporting by Mehreen Zahra-Malik and Katharine Houreld in Islamabad and Matthew Green in Lahore.; Writing by Katharine Houreld; Editing by Mark Heinrich)

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NATO official says more missiles launched in Syria

BRUSSELS (Reuters) - A short-range ballistic missile was fired inside Syria on Wednesday, following similar launches last week, a NATO official said on Thursday.

The official condemned as "reckless" the missile launches, which U.S. officials called an escalation of the 21-month-old Syrian civil war when their use was first spotted last month.

"The use of such indiscriminate weapons shows utter disregard for the lives of the Syrian people," he said.

The official said NATO had detected the launch of an unguided, short-range ballistic missile inside Syria on Wednesday, following similar launches on January 2 and 3. All the missiles were fired from inside Syria and landed in northern Syria, he said.

The description of the missiles fits the Scuds that are in the Syrian military's armory, but the official said NATO could not confirm the type of missile used.

The NATO official was responding to a report from a Syrian opposition activist living near the Qaldoun army base, 50 km (30 miles) north of Damascus, who said four large rockets, apparently Scuds, were fired from the base overnight.

NATO has agreed to send Patriot anti-missile batteries to protect its member Turkey from possible missile attack from Syria.

(Reporting by Adrian Croft; editing by Rex Merrifield and Sebastian Moffett)

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Exhausted Egyptians count cost of political turmoil

ZAGAZIG, Egypt (Reuters) - These days, craftsmen, shopkeepers and other inhabitants of the Egyptian Delta town of Zagazig are often too busy making ends meet to ponder why life seems to be getting harder every day.

But when, exhausted, they finally come home and sit down to their evening meal, conversations inevitably turn to growing hardship and the frightening prospect of cuts in food subsidies as the economy slides further into crisis.

With their patience already stretched after years of upheaval, Egyptians - from the capital Cairo to smaller towns like Zagazig - appear to be nearing the point where discontent could explode into a new wave of unrest.

"There is no security. There is nothing," said Soheir Abdel Moneim, a retired school teacher, as she hurried through an open-air market in Zagazig in search of vegetables she could afford.

"The pound is falling. Everything is more expensive. Is there anything that has not become more expensive?" she asked with a shrug, as traders on bicycles loaded with their wares dodged through the chaos of the market.

Nearby, a torn poster of President Mohamed Mursi beams from the wall of a crumbling brick house, with the words "Liars! Liars!" scrawled over his face.

The mood of growing nervousness is bad news for Mursi, who faces a parliamentary election in coming months, and a new round of political feuding that could pitch Egypt back into civil strife.

Egypt's economy, once strong and popular among investors, has been in tatters since the revolt of 2011 that ousted Hosni Mubarak and shook the country to its foundations.

Disagreements over a new national constitution late last year triggered violent protests, dealing another blow to the economy and eroding trust in Mursi's government.

A country where cuts in food subsidies have caused riots in the past now faces the risk of further upheaval as Mursi prepares to impose austerity measures in order to obtain a desperately needed $4.8 billion loan from the International Monetary Fund.

In Zagazig, people worry about the future.

Farouk Sarhan, the 74-year-old manager of a shop selling women's clothes, said sales were already down by almost 50 percent from just a few weeks ago.

"No one is selling or buying. I had more activity last year," he said, stubbing out a cigarette with a deep sigh in his tiny store lined with mannequins of veiled women.

"Customers are not buying as much as before because of the economic situation."

The price of fresh food often goes up in winter but shoppers in the Zagazig market said recent increases had been steep, with tomatoes and cauliflower about 50 percent dearer than at the start of the year.

WHAT NEXT?

Egypt has been on the ropes since investors and tourists fled after the revolt, when people rose up to demand their freedom and also an end to economic policies they said simply lined the pockets of the rich.

On the economic front, the picture remains grim, although Qatar's decision to lend Egypt another $2 billion has offered some respite.

Foreign reserves are dwindling and the pound has been hitting new lows daily. Food and raw materials from abroad have become more expensive, hurting businesses and families in a desert nation which relies on imports to feed itself.

As in other parts of Egypt, people in Zagazig see complex economic trends in terms of the daily hardships they must endure, and it is Mursi's government and his Muslim Brotherhood allies who get the blame.

"Mursi doesn't feel our grievances," said Emad, a man in his late 30s who sells traditional Egyptian clothes by the side of a dusty street. He said he had been forced to raise prices to cover rising costs, upsetting his customers.

Pointing to one of the black embroidered gowns, Emad said: "We used to sell this for 35 pounds ($5.40). Now it's 45 pounds. We didn't raise the prices. Traders did.

"Very few people are buying. I used to sell 50 pieces a day, and now I sell 15 or 20. Today I still haven't sold anything."

Reliable opinion polls are unavailable in Egypt and it is hard to gauge how widespread people's views are. But in Zagazig, most of those interviewed by Reuters echoed Emad's feelings.

Economists worry that continued turmoil could prompt people and businesses to convert their savings into dollars en masse - a risky process known as dollarisation which has caused trouble in many emerging market crises before.

But in Zagazig, people laughed at the idea, saying only the rich could afford to buy foreign currency. "Dollars?" asked Nabil, a local trader, as others burst into laughter. "Give me some dollars! Of course we don't have any!"

SUPPORT FOR MURSI

But some were prepared to give Mursi a chance.

In the nearby village of al-Adwa, where the future president grew up in the family of a local farmer, brick walls and fences were plastered with posters of Mursi.

A crowd of farmers standing by the side of a dirt track cutting through the village shook their fists and shouted "Mursi! Mursi!" when asked about their political views.

But even in Adwa, where Mursi appeared to enjoy rock-solid support, locals said sudden increase in taxes or abrupt cuts to fuel or food subsidies would cost him dearly.

"If that happens that would be the worst thing. What am I going to do as a farmer?" said Said Youssef, his hands black from working the land. "Where are we going to get the money?"

Another man, Aly Saber, 65, said fertilizer prices had gone up by 50 Egyptian pounds in the past year alone, making his business less profitable.

"Things are tough here in the rural areas," he said as others nodded in agreement. "Everything is becoming more expensive."

Mohamed Gamal, the 42-year-old owner of a tiny shop selling kitchen appliances, said business was so bad that he would sometimes go for days without a single customer.

"I import goods all the time. Prices have gone up by 10-40 percent since the revolution. It's gone up even more in recent weeks," said Gamal, who, Like Mursi, grew up in Adwa.

He said his neighbors were suspicious about why he had to keep raising his prices.

"People just don't believe me," he said, hunched over his desk, cigarette smoke swirling above stacks of unsold trays, cups and ironing boards. "They are not convinced why things are getting more expensive. I buy them, and they stack up."

($1 = 6.4809 Egyptian pounds)

(Writing by Maria Golovnina; Editing by Giles Elgood)

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