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 on Wednesday promised Britons a vote on whether the country should stay in the European Union or leave, rattling London's biggest allies and some investors by raising the prospect of uncertainty and upheaval.

Cameron announced the referendum would be held by the end of 2017, provided he wins the next election, and said that while Britain did not want to retreat from the world, 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 in a speech, adding that his Conservative party would campaign for the 2015 election on a promise to renegotiate the terms of 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."

A referendum would mark the second time Britons have voted on the issue. In 1975, they decided by a wide margin to stay in the EU's predecessor, two years after the country had joined.

Domestically, Cameron stands on relatively firm ground. Most recent opinion polls have shown a slim majority would vote to leave the EU amid often bitter disenchantment about its influence on the British way of life. However, a poll this week showed a majority wanted to stay.

Cameron's position is fraught with uncertainty. He must come from behind to win the next election, secure support from the EU's 26 other states for a new British role, and hope those countries can persuade their voters to back the changes.

Critics say that in the long run-up to a vote, Britain would slip into a dangerous and damaging limbo that could leave the country adrift or pushed out of the EU.

The United States, a close ally, is also uneasy about the plan, believing it will dilute Britain's international clout. President Barack Obama told Cameron by phone last week that Washington valued "a strong UK in a strong European Union".

Some of Britain's European partners were also anxious and told Cameron on Wednesday his strategy reflected a selfish and ignorant attitude. However, Angela Merkel, the leader of EU paymaster Germany, was quick to say she was ready to discuss Cameron's ideas.

French Foreign Minister Laurent Fabius was less diplomatic, quipping: "If Britain wants to leave Europe we will roll out the red carpet for you," echoing Cameron, who once used the same words to invite rich Frenchmen alienated by high taxes to move to Britain.

Billed by commentators as the most important speech of Cameron's career, his referendum promise ties him firmly to an issue that has bedeviled a generation of Conservative leaders.

In the past, he has been careful to avoid bruising partisan fights over Europe, an issue that undid the last two Conservative prime ministers, John Major and Margaret Thatcher.

His speech appeared to pacify a powerful Eurosceptic wing inside his own party, but deepen rifts with the Liberal Democrats, the junior partners in his coalition. Their leader, Deputy Prime Minister Nick Clegg, said the plan would undermine a fragile economic recovery.

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

"BREXIT"?

Cameron said he would seek to claw back powers from Brussels, saying later in parliament that when it came to employment, social and environmental legislation "Europe has gone far too far".

But such a claw back - the subject of an internal audit to identify which powers he should target for repatriation - is likely to be easier said than done.

If Cameron wins the election but then fails to renegotiate Britain's membership of the EU, a 'Brexit' could loom.

Business leaders have warned that years of doubt over Britain's EU membership would damage the $2.5 trillion economy and cool 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."

Cameron has been pushed into taking such a strong position partly by the rise of the UK Independence Party, which favors complete withdrawal from the EU and has climbed to third in the 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, who have threatened to stir up trouble for the premier, 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 holds the referendum remains as uncertain as the Conservatives' chances of winning the election. They trail the opposition Labour party in opinion polls, and the coalition is grappling with a stagnating economy as it pushes through unpopular public spending cuts to reduce a large budget deficit.

Labour leader Ed Miliband said on Wednesday his party did not want an in/out referendum.

EU REFORM

Cameron said he would campaign for Britain to stay in the EU "with all my heart and soul", provided he secured the reforms he wants. He made clear the EU must become less bureaucratic and focus more on trade deals. 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.

Cameron said the euro zone debt crisis was forcing the bloc to change and that Britain would fight to make sure new rules were fair to the 10 countries that don't use the common currency, of which Britain is the largest.

Democratic consent for the EU in Britain was now "wafer thin", he said. "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."

A YouGov opinion poll on Monday showed that more people wanted to stay in the EU than leave it, the first such result in many months. But it was unclear whether that result was a blip.

Paul Chipperfield, a 53-year-old management consultant, said he liked the strategy. "Cameron's making the right move because I don't think we've had enough debate in this country," he told Reuters. "We should be part of the EU but the EU needs to recognize that not everybody's going to jump on the same bandwagon."

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 don't want Britain to leave the EU," he told parliament later. "I want Britain to reform the EU."

In the 1975 referendum, just over 67 percent voted to stay inside with nearly 33 percent against.

(Additional reporting by Paul Taylor in Davos, Alexandra Hudson in Berlin and Brenda Goh in London; Editing by Guy Faulconbridge and David Stamp)

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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 win fewer seats than in the previous parliament, with opinion polls showing a surge in support for the far-right Jewish Home party.

By 4 p.m. (9.00 a.m. ET), six hours before polls close, the Israeli election committee said turnout was 46.6 percent, up from 41.9 percent at the same time in 2009 and the highest level since 1999, when Netanyahu, serving his first term as prime minister, was defeated by then-Labour Party leader Ehud Barak.

Ahead of Tuesday's ballot, analysts had speculated that high turnout would benefit center-left parties that have sometimes struggled to motivate their voter base.

In a sign of concern over a possible centrist surge, Netanyahu urged his supporters to go to the polls.

"Go vote, and then go back to the cafes. Go vote so we can lead Israel because ... we don't really know how all of this is going to end," he said in public remarks at Likud party headquarters in Tel Aviv.

Political sources said Netanyahu, worried 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.

British Foreign Secretary William Hague warned Israel it was losing international support, saying prospects for a two-state solution to the Israeli-Palestinian conflict were almost dead because of expanding Jewish settlement in occupied territory.

Some 5.66 million Israelis are eligible to cast a ballot, with polling stations closing at 10 p.m. (3.00 p.m. ET). Full results are due by Wednesday morning, opening the way for coalition talks that could take several weeks.

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 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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Veteran jihadist claims bloody Algeria siege for al Qaeda

ALGIERS/IN AMENAS, Algeria (Reuters) - A veteran Islamist fighter claimed responsibility on behalf of al Qaeda for the Algerian hostage crisis, a regional website reported on Sunday, tying the bloody desert siege to France's intervention across the Sahara in Mali.

Algeria said it expected to raise its preliminary death tolls of 23 hostages and 32 militants killed in the four-day siege at a gas plant deep in the Sahara.

Western governments whose citizens died nevertheless held back from criticizing tactics used by their ally in the struggle with Islamists across the vast desert.

"We in al Qaeda announce this blessed operation," Mokhtar Belmokhtar said in a video, according to the Sahara Media website, which quoted from the recording but did not immediately show it.

"We are ready to negotiate with the West and the Algerian government provided they stop their bombing of Mali's Muslims," said Belmokhtar, a one-eyed veteran guerrilla who fought in Afghanistan in 1980s and in Algeria's civil war in the 1990s.

Belmokhtar's fighters launched their attack on the In Amenas gas plant before dawn on Wednesday, just five days after French warplanes began strikes to halt advances by Islamists in neighboring northern Mali.

European and U.S. officials say the raid was almost certainly too elaborate to have been planned in so short a time, although the French campaign could have been one trigger for fighters to launch an assault they had already prepared.

"We had around 40 jihadists, most of them from Muslim countries and some even from the West," Sahara Media quoted Belmokhtar as saying. Algerian officials say Belmokhtar's group was behind the attack but he was not present himself.

Some Western governments have expressed frustration at not being informed in advance of the Algerian authorities' plans to storm the complex. However, Britain and France both defended the Algerian action in public.

"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," French Foreign Minister Laurent Fabius said.

British Prime Minister David Cameron said in a televised statement: "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."

"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."

OIL VULNERABILITIES EXPOSED

The Islamists' assault 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 the civil war with Islamist insurgents in the 1990s which claimed 200,000 lives, has insisted there would be no negotiation in the face of terrorism.

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.

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.

Minister of Communication Mohamed Said said the toll 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.

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.

With so much still unknown about the fates of foreigners held at the sites, countries that have faced casualties have yet to issue full counts of the dead. The plant was run jointly by Britain's BP and Norway's Statoil with the Algerian state oil company. A Japanese engineering firm and a French catering company also operated there.

In London, Cameron said three British nationals were confirmed killed and another three plus a British resident were also believed to be dead. One American has been confirmed killed. Statoil says five Norwegians are missing. Japanese and French citizens are also among those missing or presumed dead.

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 Belmokhtar.

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 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 Peter Graff)

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Algerian army stages "final assault" on gas plant

ALGIERS/IN AMENAS, Algeria (Reuters) - The Algerian army on Saturday carried out a final assault on al Qaeda-linked gunmen holed up in a desert gas plant, killing 11 of the Islamists after they took the lives of seven more foreign hostages, a local source and the state news agency said.

"It is over now, the assault is over, and the military are inside the plant clearing it of mines," a local source familiar with the operation told Reuters.

The state oil and gas company, Sonatrach, said the militants who attacked the plant on Wednesday and took a large number of hostages had booby-trapped the complex with explosives.

The exact death toll among the gunmen and the foreign and Algerian workers at the plant near the town of In Amenas close to the Libyan border remained unclear.

Earlier on Saturday, Algerian special forces found 15 burned bodies at the plant. Efforts were under way to identify the bodies, the source told Reuters, and it was not clear how they had died.

Sixteen foreign hostages were freed on Saturday, a source close to the crisis said. They included two Americans, two Germans and one Portuguese. Britain said fewer than 10 of its nationals at the plant were unaccounted for.

The attack on the plant swiftly turned into one of the biggest international hostage crises in decades, pushing Saharan militancy to the top of the global agenda.

INTERNATIONAL CRISIS

It marked 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.

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

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

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

Before the final assault, different sources had put the number of hostages killed at between 12 and 30, with many foreigners still unaccounted for, among them Norwegians, Japanese, Britons and Americans.

The figure of 30 came from an Algerian security source, who said eight Algerians and at least seven foreigners were among the victims, including two Japanese, two Britons and a French national. One British citizen was killed when the gunmen seized the hostages on Wednesday.

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

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.

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.

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

VETERAN JIHADIST

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.

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

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.

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.

(Additional reporting by Balazs Koranyi in Oslo, Estelle Shirbon in London, Brian Love in Paris; Writing by Giles Elgood; Editing by Sonya Hepinstall and Mark Trevelyan)

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Foreigners still caught in Sahara hostage crisis

ALGIERS (Reuters) - More than 20 foreigners were still being held hostage or missing inside a gas plant on Friday after Algerian forces stormed the desert complex to free hundreds of captives taken by Islamist militants, who threatened to attack other energy installations.

Thirty hostages, including at least seven Westerners, were killed during Thursday's assault, along with at least 18 of their captors, said an Algerian security source.

The attack, which plunged capitals around the world into crisis mode, 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.

"We are still dealing with a fluid and dangerous situation where a part of the terrorist threat has been eliminated in one part of the site, but there still remains a threat in another part," British Prime Minister David Cameron told his parliament.

A local Algerian source said 100 of 132 foreign hostages had been freed from the facility. The fate of the other 32 was unclear as the situation was changing rapidly.

Earlier he said 60 were still missing with some believed still held hostage, but it was unclear how many, and how many might be in hiding elsewhere in the sprawling compound.

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

Those still unaccounted for on Friday included 10 from Japan and eight Norwegians, according to their employers, and a number of Britons which Cameron put at "significantly" less than 30.

France said it had no information on two Frenchmen who may have been at the site and Washington has said a number of Americans were among the hostages, without giving details. The local source said a U.S. aircraft landed nearby on Friday.

Some countries have been reluctant to give details of the numbers of their missing nationals to avoid disclosing information that may be useful to their captors.

As Western leaders clamored for news, several expressed anger they had not been consulted by the Algerian government about its decision to storm the facility.

The sprawling facility housed hundreds of workers. Algeria's state news agency said the army had rescued 650 hostages in total, 573 of whom were Algerians.

"(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," it said, quoting a security source.

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.

An Irish engineer who survived said he saw four jeeps full of hostages blown up by Algerian troops.

A French hostage employed by a French catering company said Algerian military forces had found some British hostages hiding 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."

"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."

Western governments are trying to determine the degree to which the hostage taking was part of an international conspiracy and was linked, as the captors claimed, to the week-old French military intervention in neighboring Mali.

The Algerian security source said only two of 11 militants whose bodies were found on Thursday were Algerian, including the squad's leader. The others comprised three Egyptians, two Tunisians, two Libyans, a Malian and a Frenchman, he said.

Algeria state news agency APS said the group had planned to take the hostages to Mali.

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.

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," 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' oil and gas installations, 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.

Hundreds of workers from international oil companies were evacuated from Algeria on Thursday and many more will follow, BP, which jointly ran the gas plant with Norway's Statoil and the Algerian state oil firm, said on Friday.

The overall commander of the kidnappers, Algerian officials said, was Mokhtar Belmokhtar, a veteran of Afghanistan in the 1980s and Algeria's bloody civil war of the 1990s and one of a host of Saharan Islamists, flush with arms and fighters from the 2011 civil war in Libya. He appears not to have been present.

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."

Algeria's government 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.

Britain's Cameron, who warned people to prepare for bad news and who cancelled a major policy speech on Friday to deal with the situation, said he would have liked Algeria to have consulted before the raid. Japan made similar complaints.

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.

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 Peter Graff)

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Algerian forces launch operation to break desert siege

ALGIERS (Reuters) - Twenty-five foreign hostages escaped and six were killed on Thursday when Algerian forces launched an operation to free them at a remote desert gas plant, Algerian sources said, as one of the biggest international hostage crises in decades unfolded.

The standoff began when gunmen calling themselves the Battalion of Blood stormed the gas facility on Wednesday morning. They said they were holding 41 foreigners and demanded a halt to a French military operation against fellow al Qaeda-linked Islamist militants in neighboring Mali.

The raid increased fears that jihadist militants could launch further attacks in Algeria, a vast desert country with large oil and gas reserves that is only just recovering from a protracted conflict with Islamist rebels during the 1990s which cost an estimated 200,000 lives.

Fast-moving details of the military operation to free the hostages from the gas plant were difficult to confirm. Algeria's official APS news agency said about half the foreign hostages had been freed.

A local source told Reuters six foreign hostages were killed along with eight captors when the Algerian military fired on a vehicle being used by the gunmen.

Mauritania's ANI news agency, which has been in constant contact with the kidnappers, said seven hostages were still being held: two Americans, three Belgians, one Japanese and one British citizen.

It quoted one of the kidnappers as saying that Algerian ground forces were trying to fight their way into the complex.

ANI and Qatar-based Al Jazeera reported that 34 of the captives and 15 of their captors had been killed when government forces fired from helicopters at a vehicle. Those death tolls, far higher than confirmed by the local source, would contradict the reports that large numbers of foreigners escaped alive.

Britain and Norway, whose oil firms BP and Statoil run the plant jointly with the Algerian state oil company, said they had been informed by the Algerian authorities that a military operation was under way but did not provide details.

As many as 600 Algerian workers at the site managed to flee, the official Algerian news agency said.

RAISING THE STAKES

The incident dramatically raises the stakes in the French military campaign in neighboring Mali, where hundreds of French paratroopers and marines are launching a ground offensive against rebels after air strikes began last week.

Algerian Interior Minister Daho Ould Kablia said the kidnappers were led by Mokhtar Belmokhtar, a veteran Islamist guerrilla who fought Soviet forces in Afghanistan in the 1980s and had set up his own group in the Sahara after falling out with other local al Qaeda leaders.

A holy warrior-cum-smuggler dubbed "The Uncatchable" by French intelligence and "Mister Marlboro" by some locals for his illicit cigarette-running business, Belmokhtar's links to those who seized towns across northern Mali last year are unclear.

The hostage takers earlier allowed some prisoners to speak to the media, apparently to put pressure on Algerian forces not to storm the compound. An unidentified hostage who spoke to France 24 television said prisoners were forced to wear explosive belts and captors had threatened to blow up the plant.

A local source told Reuters the hostage takers had blown up a petrol filling station at the plant.

Two hostages, identified as British and Irish, spoke to Al Jazeera television and called on the Algerian army to withdraw from the area to avoid casualties.

"We are receiving care and good treatment from the kidnappers. The (Algerian) army did not withdraw and they are firing at the camp," the British man said. "There are around 150 Algerian hostages. We say to everybody that negotiations is a sign of strength and will spare many any loss of life."

Ireland said later that the Irish hostage was among those freed.

NUMBERS UNCONFIRMED

The precise number and nationalities of foreign hostages could not be confirmed, with some countries reluctant to release information that could be useful to the captors.

Britain said one of its citizens was killed in the initial storming on Wednesday and "a number" of others were held.

The militants said seven Americans were among their hostages, a figure U.S. officials said they could not confirm.

Norwegian oil company Statoil said nine of its Norwegian staff and three Algerian employees were captive. Britain's BP, which operates the plant with Statoil and Algerian state oil company Sonatrach, said some of its staff were held but would not say how many or their nationalities.

Japanese media said five workers from Japanese engineering firm JGC Corp. were held, a number the company did not confirm. Paris has not said whether any hostages were French. Vienna said one hostage was Austrian, Dublin said one was Irish and Bucharest said an unspecified number were Romanian.

Spanish oil company Cepsa said it had begun to evacuate personnel from elsewhere in Algeria, an OPEC member.

Paris said the Algeria attack demonstrated it was right to intervene in Mali: "We have the flagrant proof that this problem goes beyond just the north of Mali," French ambassador to Mali Christian Rouyer told France Inter radio.

President Francois Hollande has received public backing from Western and African allies who fear that al Qaeda, flush with men and arms from the defeated forces of Libya's Muammar Gaddafi, is building a desert haven in Mali, a poor country helpless to combat fighters who seized its north last year.

However, there is also some concern in Washington and other capitals that the French action in Mali could provoke a backlash worse than the initial threat by militants in the remote Sahara.

The militants, communicating through established contacts with media in neighboring Mauritania, said they had dozens of men armed with mortars and anti-aircraft missiles in the compound and had rigged it with explosives.

"We hold the Algerian government and the French government and the countries of the hostages fully responsible if our demands are not met, and it is up to them to stop the brutal aggression against our people in Mali," read one statement carried by Mauritanian media.

They condemned Algeria's secularist government for letting French warplanes fly over its territory to Mali and shutting its border to Malian refugees.

PRESSING ON

The attack in Algeria did not stop France from pressing on with its campaign in Mali. It said on Thursday it now had 1,400 troops on the ground in Mali, and combat was underway against the rebels that it first began targeting from the air last week.

"There was combat yesterday, on the ground and in the air. It happened overnight and is under way now," said Le Drian. Residents said a column of about 30 French Sagaie armored vehicles set off on Wednesday toward rebel positions from the town of Niono, 300 km (190 miles) from the capital, Bamako.

The French action last week came as a surprise but received widespread international support in public. Neighboring African countries planning to provide ground troops for a U.N. force by September have said they will move faster to deploy them.

Nigeria, the strongest regional power, sent 162 soldiers on Thursday, the first of an anticipated 906.

"The whole world clearly needs to unite and do much more than is presently being done to contain terrorism, with its very negative impact on global peace and security," President Goodluck Jonathan said.

Germany, Britain and the Netherlands have offered transport aircraft to help ferry in African troops. Washington has said it is considering what support it can offer.

Many inhabitants of northern Mali have welcomed the French action, though some also fear being caught in the cross-fire. The Mali rebels who seized Timbuktu and other oasis towns in northern Mali last year imposed Islamic law, including public amputations and beheadings that angered many locals.

A day after launching the campaign in Mali, Hollande also ordered a failed rescue in Somalia on Saturday to free a French hostage held by al Qaeda-linked al Shabaab militants since 2009. Al Shabaab said on Thursday it had executed hostage Denis Allex. France said it believed he died in the rescue.

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

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Dozens held after Islamists attack Algerian gas field

ALGIERS (Reuters) - Islamist militants attacked a gas field in Algeria on Wednesday, claiming to have kidnapped up to 41 foreigners including seven Americans in a dawn raid in retaliation for France's intervention in Mali, according to regional media reports.

The raiders were also reported to have killed three people, including a Briton and a French national.

An al Qaeda affiliated group said the raid had been carried out because of Algeria's decision to allow France to use its air space for attacks against Islamists in Mali, where French forces have been in action against al Qaeda-linked militants since last week.

The attack in southern Algeria also raised fears that the French action in Mali could prompt further Islamist revenge attacks on Western targets in Africa, where al Qaeda in the Islamic Maghreb (AQIM) operates across borders in the Sahara desert, and in Europe.

AQIM said it had carried out Wednesday's raid on the In Amenas gas facility in Algeria, Mauritania's ANI news agency reported.

The Algerian interior ministry said: "A terrorist group, heavily armed and using three vehicles, launched an attack this Wednesday at 5 a.m. against a Sonatrach base in Tigantourine, near In Amenas, about 100 km (60 miles) from the Algerian and Libyan border."

The gas field is operated by a joint venture including BP, Norwegian oil firm Statoil and Algerian state company Sonatrach.

ARMED MEN

BP said armed men were still occupying facilities at the gas field.

"The site was attacked and occupied by a group of unidentified armed people at about 0500 UK time. Contact with the site is extremely difficult, but we understand that armed individuals are still occupying the In Amenas operations site," it said.

Algeria's official APS news agency said a Briton and an Algerian security guard had been killed and seven people were injured. A French national was also killed in the attack, a local source said.

Also among those reported kidnapped by various sources were five Japanese nationals working for the Japanese engineering firm JGC Corp, a French national, an Irishman, a Norwegian and a number of Britons.

A member of an Islamist group styling itself the "Blood Battalion" was quoted by Mauritanian media as saying that five of the hostages were being held at the gas facility and 36 were in a housing area. APS said the Islamist raiders had freed Algerians working at the gas facility.

"The operation was in response to the blatant interference by Algeria and the opening of its air space to French aircraft to bomb northern Mali," the Islamist spokesman told Mauritania's ANI news agency.

ANI, which has regular direct contact with Islamists, said that fighters under the command of Mokhtar Belmokhtar were holding the foreigners.

Belmokhtar for years commanded al Qaeda fighters in the Sahara before setting up his own armed Islamist group late last year after an apparent fallout with other militant leaders.

The Algerian army was in the area of the gas facility, according to French and Algerian sources.

SECURITY IMPLICATIONS

The attack was the first time in years that Islamist militants are known to have launched an attack on an Algerian energy facility.

The attack could have implications for security across the whole of Algeria's energy sector, which supplies about a quarter of Europe's natural gas imports and exports millions of barrels of crude oil each year.

Such an attack would require a large and heavily-armed insurgent force with a degree of freedom to move around -- all elements that al Qaeda has not previously had.

However, the conflict in neighboring Libya in 2011 changed the balance of force. Security experts say al Qaeda was able to obtain arms, including heavy weapons, from the looted arsenals of former leader Muammar Gaddafi.

Statoil, a minority shareholder in the gas venture, said it had 17 employees at the plant and four of them had been evacuated. The company declined to comment on the other 13.

The five Japanese work for the engineering firm JGC Corporation, Jiji news agency reported, quoting company officials. JGC has a deal with Sonatrach-BP-Statoil Association for work in gas production at In Amenas.

A reporter for Japan's NHK television managed to call a JGC worker in Algeria.

The worker said he got a phone call from a colleague at the gas field. "It was around 6 a.m. this morning. He said that he had been hearing gunshots for about 20 minutes. I wasn't able to get through to him since."

French troops launched their first ground operation against Islamist rebels in Mali on Wednesday in an action to dislodge from a strategic town al Qaeda-linked fighters who have resisted six days of air strikes.

(Additional reporting by Catherine Bremer and John Irish in Paris, Laurent Prieur in Nouakchott, Andrew Osborn in London, Balazs Koranyi in Oslo, Antoni Slodkowski in Tokyo, Raissa Kasolowsky in Abu Dhabi and Christian Lowe in Warsaw; Editing by Giles Elgood)

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Pakistan turmoil deepens as court orders PM's arrest

ISLAMABAD (Reuters) - Pakistan's Supreme Court ordered the arrest of the prime minister on Tuesday on corruption allegations, ratcheting up pressure on a government that is also facing street protests led by a cleric who has a history of ties to the army.

The combination of the arrest order and the mass protest in the capital Islamabad led by Muslim cleric Muhammad Tahirul Qadri raised fears among politicians that the military was working with the judiciary to force out a civilian leader.

"There is no doubt that Qadri's march and the Supreme Court's verdict were masterminded by the military establishment of Pakistan," Fawad Chaudhry, an aide to Prime Minister Raja Pervez Ashraf, told Reuters.

"The military can intervene at this moment as the Supreme Court has opened a way for it."

However, the ruling coalition led by the Pakistan Peoples' Party (PPP) has a majority in parliament and lawmakers can simply elect another prime minister if Ashraf is ousted. In June, Ashraf replaced Prime Minister Yusuf Raza Gilani, who was disqualified by the Supreme Court in a previous showdown between the government and the judiciary.

Also, elections are due in a few months and President Asif Ali Zardari hopes to lead the first civilian government in Pakistan's 65 years as an independent nation that will complete its full term.

But power struggles will distract the unpopular government from tackling an array of problems - a Taliban insurgency, economic stagnation and growing sectarian tensions triggered by bomb attacks and tit-for-tat shootings.

The military, which sees itself as the guarantor of Pakistan's stability, has long regarded the PPP-led government as corrupt, incompetent and unable to prevent the nuclear-armed country from falling apart.

Pakistan's powerful army has a long history of coups and intervening in politics. But these days generals seem to have little appetite for a coup. Army chief General Ashfaq Kayani has vowed to keep the military out of politics.

But many believe top military leaders still try to exert behind-the-scenes influence, and any moves by the military in the latest crisis could not happen without a green light from Kayani, arguably the most powerful man in Pakistan.

"Extra-constitutional regime change, or "outside of the political calendar" if you will, is only possible in Pakistan with the tacit nod of the military, on account of it being a long-time stakeholder in Pakistani politics," said Shamila Chaudhry, an analyst at Eurasia Group.

"The Qadri march was like a trial balloon. The military indirectly sent it out to see if it would work."

Some politicians believe the military will try to dominate the caretaker administration that will oversee the run-up to the polls after parliament is dissolved, which is due to happen in March. An election date has yet to be announced.

The protest by Qadri and his followers has also been seen by commentators as being orchestrated by the military to add to the pressure on Zardari's government, although the military has denied any ties to the cleric.

PEOPLE'S MONEY

Thousands of followers of the populist cleric camped near the federal parliament cheered and waved Pakistani flags as television channels broadcast news of the Supreme Court's order to arrest Ashraf on charges of corruption.

"We don't want any of those old politicians. They just take all the people's money," said 19-year-old student Mohammed Wasim. "We congratulate the whole nation (on the Supreme Court's order). Now we have to take the rest of the thieves to court."

Government officials said they were baffled by the arrest order, which came hours after Chief Justice Iftikhar Chaudhry said elections should go ahead as scheduled.

"This was totally unexpected," an official in Ashraf's office told Reuters. "The prime minister and two or three of his friends were watching Qadri speak on television and this suddenly happened."

Pakistan's stock exchange fell by more than 500 points, or nearly three percent, on news of the court order, due to fears over fresh political turmoil, which comes against a backdrop of militant bombings and tension on the border with India.

Qadri, who played a role in backing a military coup in 1999, threatened to remain camped out near the federal parliament with thousands of supporters until his demands for the resignation of the government were met.

The fiery orator returned home from Canada less than a month ago to lead a call for electoral reforms to bar corrupt politicians from office that has made him an instant hit among Pakistanis disillusioned with the state.

In a speech from behind a bullet-proof shield in front of parliament, Qadri praised the military and the judiciary, the country's two other power centers.

"(The government) has wasted and brought a bad end to our armed forces, those armed forces who are highly sincere, highly competent and highly capable and highly professional," he said, alternating between Urdu and English.

"Even they can't do anything because the political government isn't able to deliver anything from this land. Judgments are being passed by our great, independent judiciary but the government is not ready to implement them."

Qadri is demanding that the government dissolve the legislature and announce the formation of a caretaker government to oversee the run-up to elections.

One senior military officer, who said he was speaking in a purely personal capacity, said there was no appetite in the military to repeat the coups seen in Pakistan's past, but added the stand-off could be resolved if the army played a role in the formation of a caretaker government as a "moderator".

"We should try as far as possible to abide by the constitution and law in looking for change. The army chief has made this clear," the officer told Reuters.

"But things seem to be moving beyond control," the officer added. "It is totally incorrect to say the army is behind Qadri. But if he brings thousands of people to the streets and things get worse, there may be very few options."

(Additional reporting by Matthew Green and Mubasher Bukhari in ISLAMABAD and Jibran Ahmad in PESHAWAR; Writing by Michael Georgy; Editing by Raju Gopalakrishnan)

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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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France bombs Islamist stronghold in north Mali

BAMAKO/PARIS (Reuters) - French fighter jets pounded an Islamist rebel stronghold in northern Mali on Sunday as Paris poured more troops into the capital Bamako, awaiting a West African force to dislodge al Qaeda-linked insurgents from the country's north.

The attack on Gao, the largest city in the desert region controlled by the Islamist alliance, marked a decisive drive northwards on the third day of French air strikes, moving deep into the vast territory seized by rebels in April.

France is determined to end Islamist domination of north Mali, which many fear could act as a base for attacks on the West and for links with al Qaeda in Yemen, Somalia and North Africa.

France's Defence Minister Jean-Yves Le Drian said French intervention on Friday had prevented rebels driving southward to seize Bamako itself. He said air raids would continue in the coming days.

"The president is totally determined that we must eradicate these terrorists who threaten the security of Mali, our own country and Europe," he told French television.

In Gao, a dusty town on the banks of the Niger river where Islamists have imposed an extreme form of Sharia law, residents said French fighters and attack helicopters pounded the airport and rebel positions. A huge cloud of black smoke rose from the militants' camp in the north of the city.

"The planes are so fast you can only hear their sound in the sky," resident Soumaila Maiga said by telephone. "We are happy, even though it is frightening. Soon we will be delivered."

A Malian rebel spokesman said the French had also bombed targets in the towns of Lere and Douentza.

France has deployed about 550 soldiers to Mali, split between Bamako and the town of Mopti, 500 km (300 miles) north, Le Drian said. State-of-the-art Rafale fighter jets were also dispatched to reinforce "Operation Serval" - named after an African wildcat.

In Bamako, a Reuters cameraman saw more than 100 French troops disembark on Sunday from a military cargo plane at the international airport, on the outskirts of the capital.

The city itself was calm, 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.

AFRICAN TROOPS EXPECTED

More than two decades of peaceful elections had earned Mali a reputation as a bulwark of democracy, but that image unraveled in a matter of weeks after a military coup last March that left a power vacuum for the Islamist rebellion.

French President Francois Hollande's intervention in Mali has won plaudits from leaders in Europe, Africa and the United States, but it is not without risks.

It raised the risk level for eight French hostages held by al Qaeda allies in the Sahara and for the 30,000 French expatriates living in neighboring, mostly Muslim states.

Concerned about reprisals, France has tightened security at public buildings and on public transport. It advised its 6,000 citizens in Mali to leave as spokesmen for the Islamist groups have promised to exact revenge.

In its first casualty of the campaign, Paris said a French pilot was killed on Friday when rebels shot down his helicopter.

Hours earlier, a French intelligence officer held hostage in Somalia by al Shabaab extremists linked to al Qaeda was killed in a botched commando raid to free him.

President Hollande says France's aim is simply to support a mission by West African bloc ECOWAS to retake the north, as mandated by a U.N. Security Council resolution in December.

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

Ouattara, installed in power with French military backing in 2011, convened a summit of the 15-nation bloc for Saturday in Ivory Coast to discuss the mission.

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

Military analysts expressed doubt, however, that African nations would be able to mount a swift operation to retake north Mali - a harsh, sparsely populated terrain the size of France - as neither the equipment nor ground troops were prepared.

The United States is considering sending a small number of unarmed surveillance drones to Mali as well as providing logistics support, a U.S. official told Reuters. Britain and Canada have also promised logistical support.

Former French colonies Senegal, Niger and Burkina Faso have all pledged to deploy 500 troops within days. In contrast, regional powerhouse Nigeria, due to lead the ECOWAS force, has suggested it would take time to train and equip the troops.

HOUSE-TO-HOUSE SEARCHES

France, however, appeared to have assumed control of the operation on the ground. Its airstrikes allowed Malian troops to drive the Islamists out of the town of Konna, which they had briefly seized this week in their southward advance.

Calm returned to the town on Sunday after three nights of combat as the Malian army mopped up any rebel fighters. A senior Malian army official said more than 100 rebels had been killed.

"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."

Human Rights Watch said at least 11 civilians, including three children, had been killed in the fighting.

A spokesman for Doctors Without Borders in neighboring Mauritania said about 200 Malian refugees had already fled across the border to a camp at Fassala and more were on their way.

In Bamako, 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.

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

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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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