Greece, markets satisfied by EU-IMF Greek debt deal

BRUSSELS (Reuters) - The Greek government and financial markets were cheered on Tuesday by an agreement between euro zone finance ministers and the International Monetary Fund to reduce Greece's debt, paving the way for the release of urgently needed aid loans.

The deal, clinched at the third attempt after weeks of wrangling, removes the biggest risk of a sovereign default in the euro zone for now, ensuring the near-bankrupt country will stay afloat at least until after a 2013 German general election.

"Tomorrow, a new day starts for all Greeks," Prime Minister Antonis Samaras told reporters at 3 a.m. in Athens after staying up to follow the tense Brussels negotiations.

After 12 hours of talks, international lenders agreed on a package of measures to reduce Greek debt by more than 40 billion euros, projected to cut it to 124 percent of gross domestic product by 2020.

In an additional new promise, ministers committed to taking further steps to lower Greece's debt to "significantly below 110 percent" in 2022.

That was a veiled acknowledgement that some write-off of loans may be necessary in 2016, the point when Greece is forecast to reach a primary budget surplus, although Germany and its northern allies continue to reject such a step publicly.

Analyst Alex White of JP Morgan called it "another moment of 'creative ambiguity' to match the June (EU) Summit deal on legacy bank assets; i.e. a statement from which all sides can take a degree of comfort".

The euro strengthened, European shares climbed to near a three-week high and safe haven German bonds fell on Tuesday, after the agreement to reduce Greek debt and release loans to keep the economy afloat.

"The political will to reward the Greek austerity and reform measures has already been there for a while. Now, this political will has finally been supplemented by financial support," economist Carsten Brzeski of ING said.

PARLIAMENTARY APPROVAL

To reduce the debt pile, ministers agreed to cut the interest rate on official loans, extend the maturity of Greece's loans from the EFSF bailout fund by 15 years to 30 years, and grant a 10-year interest repayment deferral on those loans.

German Finance Minister Wolfgang Schaeuble said Athens had to come close to achieving a primary surplus, where state income covers its expenditure, excluding the huge debt repayments.

"When Greece has achieved, or is about to achieve, a primary surplus and fulfilled all of its conditions, we will, if need be, consider further measures for the reduction of the total debt," Schaeuble said.

Eurogroup Chairman Jean-Claude Juncker said ministers would formally approve the release of a major aid installment needed to recapitalize Greece's teetering banks and enable the government to pay wages, pensions and suppliers on December 13 - after those national parliaments that need to approve the package do so.

The German and Dutch lower houses of parliament and the Grand Committee of the Finnish parliament have to endorse the deal. Losing no time, Schaeuble said he had asked German lawmakers to vote on the package this week.

Greece will receive 43.7 billion euros in four installments once it fulfils all conditions. The 34.4 billion euro December payment will comprise 23.8 billion for banks and 10.6 billion in budget assistance.

The IMF's share, less than a third of the total, will be paid out only once a buy-back of Greek debt has occurred in the coming weeks, but IMF Managing Director Christine Lagarde said the Fund had no intention of pulling out of the program.

Austrian Chancellor Werner Faymann welcomed the deal but said Greece still had a long way to go to get its finances and economy into shape. Vice Chancellor Michael Spindelegger told reporters the important thing had been keeping the IMF on board.

"It had threatened to go in a direction that the IMF would exit Greek financing. This was averted and this is decisive for us Europeans," he said.

The debt buy-back was the part of the package on which the least detail was disclosed, to try to avoid giving hedge funds an opportunity to push up prices. Officials have previously talked of a 10 billion euro program to buy debt back from private investors at about 35 cents in the euro.

The ministers promised to hand back 11 billion euros in profits accruing to their national central banks from European Central Bank purchases of discounted Greek government bonds in the secondary market.

BETTER FUTURE

The deal substantially reduces the risk of a Greek exit from the single currency area, unless political turmoil were to bring down Samaras's pro-bailout coalition and pass power to radical leftists or rightists.

The biggest opposition party, the hard left SYRIZA, which now leads Samaras's center-right New Democracy in opinion polls, dismissed the deal and said it fell short of what was needed to make Greece's debt affordable.

Greece, where the euro zone's debt crisis erupted in late 2009, is proportionately the currency area's most heavily indebted country, despite a big cut this year in the value of privately-held debt. Its economy has shrunk by nearly 25 percent in five years.

Negotiations had been stalled over how Greece's debt, forecast to peak at 190-200 percent of GDP in the coming two years, could be cut to a more bearable 120 percent by 2020.

The agreed figure fell slightly short of that goal, and the IMF insisted that euro zone ministers should make a firm commitment to further steps to reduce the debt if Athens faithfully implements its budget and reform program.

The main question remains whether Greek debt can become affordable without euro zone governments having to write off some of the loans they have made to Athens.

Germany and its northern European allies have hitherto rejected any idea of forgiving official loans to Athens, but European Union officials believe that line may soften after next September's German general election.

Schaeuble told reporters that it was legally impossible for Germany and other countries to forgive debt while simultaneously giving new loan guarantees. That did not explicitly preclude debt relief at a later stage, once Greece completes its adjustment program and no longer needs new loans.

But senior conservative German lawmaker Gerda Hasselfeldt said there was no legal possibility for a debt "haircut" for Greece in the future either.

At Germany's insistence, earmarked revenue and aid payments will go into a strengthened "segregated account" to ensure that Greece services its debts.

A source familiar with IMF thinking said a loan write-off once Greece has fulfilled its program would be the simplest way to make its debt viable, but other methods such as forgoing interest payments, or lending at below market rates and extending maturities could all help.

German central bank governor Jens Weidmann has suggested that Greece could "earn" a reduction in debt it owes to euro zone governments in a few years if it diligently implements all the agreed reforms. The European Commission backs that view.

The ministers agreed to reduce interest on already extended bilateral loans in stages from the current 150 basis points above financing costs to 50 bps.

(Additional reporting by Annika Breidhardt, Robin Emmott and John O'Donnell in Brussels, Andreas Rinke and Noah Barkin in Berlin, Michael Shields in Vienna; Writing by Paul Taylor; editing by David Stamp)

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Satellite photo shows increased activity at North Korean launch site

WASHINGTON (Reuters) - A new satellite image shows a marked increase in activity at a North Korean missile launch site, pointing to a possible long-range ballistic missile test by Pyongyang in the next three weeks, according to satellite operator DigitalGlobe Inc.

The imagery was released days after a Japanese newspaper, the Asahi Shimbun, reported that U.S. intelligence analysts had detected moves that were seen as preparation by North Korea for a long-range missile launch as early as this month.

DigitalGlobe, which provides commercial satellite imagery to the U.S. government and foreign governments, on Monday released a new image that it said showed increased activity at North Korea's Sohae (West Sea) Satellite Launch Station.

It said the imagery showed more people, trucks and other equipment at the site, a level of activity that was consistent with preparations seen before North Korea's failed April 13 rocket launch.

"Given the observed level of activity noted of a new tent, trucks, people and numerous portable fuel/oxidizer tanks, should North Korea desire, it could possibly conduct its fifth satellite launch event during the next three weeks," DigitalGlobe said in a statement accompanying the image.

A Pentagon spokeswoman declined to comment on the reported satellite images, but said the Defense Department's position on North Korea's missile development efforts had not changed.

She urged North Korea to comply with U.N. Security Council resolutions that "require Pyongyang to suspend all activities related to its ballistic missile program in a complete, verifiable, and irreversible manner, and re-establish its moratorium on missile launching."

North Korea, which carried out nuclear tests in 2006 and 2009 and is under heavy U.N. sanctions for its atomic weapons program, has tried for years to influence major events in South Korea by waging propaganda or armed attacks. South Korea is gearing up for a presidential election on December 19.

North and South Korea have been technically at war since their 1950-53 conflict ended in a truce, not a peace treaty, and regional powers have for years been trying to rein in the North's nuclear program.

North Korea is believed to be developing a long-range ballistic missile with a range of up to 4,200 miles aimed at hitting the continental United States but the last two rocket test launches failed.

In April, under its new leader Kim Jong-un, North Korea launched a rocket that flew just a few minutes covering a little over 60 miles before crashing into the sea between South Korea and China.

(Reporting By Andrea Shalal-Esa; Editing by Cynthia Osterman and Mohammad Zargham)

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France to back Palestinian U.N. status

PARIS (Reuters) - France said on Tuesday it would vote in favour of Palestinian non-member status at the United Nations, boosting Palestinian efforts to secure greater international recognition.

Frustrated that their bid for full U.N. membership last year was thwarted by U.S. opposition in the U.N. Security Council, Palestinians have launched a watered-down bid for recognition as a non-member state, similar to the status the Vatican enjoys.

The proposal, which is due to be put to the vote in the General Assembly at the end of the week, would implicitly recognize Palestinian statehood. It could also grant access to bodies such as the International Criminal Court in The Hague, where the Palestinians could file complaints against Israel.

"This Thursday or Friday, when the question is asked, France will vote yes," Foreign Minister Laurent Fabius announced in the French National Assembly, the lower house of parliament.

Abbas' bid seems certain to win approval in any vote in the 193-nation assembly. The United States say Palestinian statehood must be achieved by negotiation and has called on Abbas to return to peace talks that collapsed in 2010 over Israeli settlement construction in the occupied West Bank.

"It is only with negotiations between the two sides that we demand immediately without any preconditions that a Palestinian state can become a reality," Fabius said.

France, a member of the U.N. Security Council, had under former President Nicolas Sarkozy promised to support Abbas if he opted for the upgrade option and broke from its closest allies last year voting in favour of giving the Palestinians full membership of the U.N.'s cultural agency UNESCO.

(Reporting by John Irish; Editing by Angus MacSwan)

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British court stops extradition of Iranian to U.S. in arms case

LONDON (Reuters) - A British court blocked on Tuesday the extradition of a former Iranian diplomat wanted by the United States after he was caught in a sting operation trying to export night-vision weapons' sights to Iran.

Nosratollah Tajik, 59, a former Iranian ambassador to Jordan, was arrested in London in 2006 after agents from the U.S. Department of Homeland Security posed as arms dealers seeking to sell the military kit in violation of arms embargoes.

Britain's Home Office, or interior ministry, which ordered Tajik's extradition last year, said it was disappointed by the High Court's decision and was considering an appeal.

The High Court proceedings revealed this year that the British government had tried and failed to persuade the Americans to withdraw the extradition request to avoid endangering British diplomats in Iran.

Tajik spent years fighting extradition on grounds of ill health. The courts rejected these arguments in 2008 and he then appealed to the Home Office with new medical evidence.

The Home Office rejected his appeal in November 2011 and ordered his extradition. Tajik launched new court proceedings against the Home Office's decision, culminating in Tuesday's ruling.

But the High Court hearings revealed that for almost three years while Tajik thought the Home Office was considering his medical evidence, the ministry had already decided that ill health was not a valid reason not to extradite him.

The real cause for the long delay in issuing the decision was that the British government had asked Washington to drop the extradition request. It received no response for more than two and a half years despite repeatedly raising the matter.

The court was shown correspondence between the Home Office and the Foreign Office, dating back to early 2009, that showed officials were concerned that if Tajik were extradited Britain's ambassador to Tehran could be expelled and its embassy in the Iranian capital could come under attack.

Britain's embassy in Tehran was stormed in November 2011 over sanctions imposed by London on Iran over its nuclear program. The embassy was evacuated and has been unstaffed since.

Delivering his judgment, after hearing two days of arguments last month, judge Alan Moses criticized the United States for taking so long to respond after Britain asked in early 2009 that it consider dropping the request for Tajik's extradition.

"The USA advanced no justification for choosing to reply to the United Kingdom's request in August 2011 and not much earlier, in 2009 or 2010," the judge wrote in a summary of his 20-page ruling.

"The only inference the court could draw was that it (the United States) had arrogated to itself the time for choosing when Mr Tajik should be extradited and face trial, without advancing any justification for its decision."

The judge said British law did not allow for such a stance and the matter should have been dealt with urgently. The delays in the case were in breach of British law and therefore the extradition should not take place, he said.

Tajik had been free on bail but tagged and subject to a night-time curfew pending the outcome of his legal battle.

(Reporting by Estelle Shirbon; editing by Robert Woodward)

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Samples taken from Arafat corpse for poison tests

RAMALLAH, West Bank (Reuters) - Forensic experts took samples from Yasser Arafat's uncovered corpse in the West Bank on Tuesday, trying to determine if he was murdered by Israeli agents using the hard-to-trace radioactive poison, Polonium.

Palestinians witnessed the funeral of their hero and longtime leader eight years ago, but conspiracy theories surrounding his death have never been laid to rest.

Many are convinced their icon was the victim of a cowardly assassination, and may stay convinced whatever the outcome of this autopsy. But some in the city of Ramallah where he lies deplored the uncovering of his body on Tuesday.

"This is wrong. After all this time, today they suddenly want to find out the truth?" said construction worker Ahmad Yousef, 31. "They should have done it eight years ago," he said.

Arafat's body was uncovered in its grave and samples were removed without having to lift the corpse from the ground. As a result, the planned reburial ceremony with full military honors was called off.

The tomb was resealed in hours and wreaths were placed by Palestinian leaders including Prime Minister Salam Fayyad.

"The state of the body was exactly what you would expect to find for someone who has been buried for eight years. There was nothing out of the ordinary," Health Minister Hani Abdeen told a news conference.

French magistrates in August opened a murder inquiry into Arafat's death in Paris in 2004 after a Swiss institute said it had discovered high levels of polonium on clothing of his which was supplied by his widow, Suha, for a television documentary.

The head of the Palestinian investigation committee, Tawfiq Tirawi said the forensic procedure went smoothly. A Palestinian medical team took samples and gave them to each of the Swiss, French and Russian teams.

"We need proof in order to find those who are behind this assassination and take it to the ICC (International Criminal Court)," he said. "When we have proof, we will go to the ICC for it to be our first case to try those whose policy is assassinations."

RESULTS IN SPRING 2013

Jordanian doctor Abdullah al Bashir, head of the Palestinian medical committee, said about 20 samples were taken and analysis would take at least three months.

"In order to do these analyses, to check, cross-check and double cross-check, it will take several months and I don't think we'll have anything tangible available before March or April next year," said Darcy Christen, spokesman for Lausanne University Hospital in Switzerland that carried out the original tests on Arafat's clothes.

Arafat was always a freedom fighter to Palestinians but a terrorist to Israelis first, and a partner for peace only later. He led the bid for a Palestinian state through years of war and peacemaking, then died in a French hospital aged 75 after a short, mysterious illness.

No autopsy was carried out at the time, at the request of Suha, and French doctors who treated him said they were unable to determine the cause of death.

But allegations of foul play surfaced immediately, and many Palestinians pointed the finger at Israel, which confined Arafat to his West Bank headquarters in Ramallah for the final two and a half years of his life after a Palestinian uprising erupted.

Israel denies murdering him. Its leader at the time, Ariel Sharon, now lies in a coma from which he is expected never to awake. Israel invited the Palestinian leadership to release all Arafat's medical records, which were never made public following his death and still have not been opened.

Polonium, apparently ingested with food, was found to have caused the death of former Russian spy Alexander Litvinenko in London in 2006. But some experts have questioned whether Arafat could have died in this way, pointing to a brief recovery during his illness that they said was not consistent with radioactive poisoning. They also noted he did not lose all his hair.

Eight years is considered the limit to detect any traces of the fast-decaying polonium and Lausanne hospital questioned in August if it would be worth seeking any samples, if access to Arafat's body was delayed as late as "October or November."

Not all of Arafat's family agreed to the exhumation.

Arafat's widow watched her husband's uncovering on television from her house in Malta.

"This will bring closure, we will know the truth about why he died. I owe this answer to the Palestinian people, to the new generation, and to his daughter," a tearful Suha told timesofmalta.com.

(Writing by Crispian Balmer; addition reporting by Chris Scicluna in Malta; Editing by Douglas Hamilton, Tom Pfeiffer and Jason Webb)

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Mursi opponents clash with police in Cairo

CAIRO (Reuters) - Opponents of President Mohamed Mursi clashed with Cairo police on Tuesday as thousands of protesters stepped up pressure on the Islamist to scrap a decree they say threatens Egypt with a new era of autocracy.

Police fired tear gas at stone-throwing youths in streets off the capital's Tahrir Square, heart of the uprising that toppled Hosni Mubarak last year. Protesters also turned out in Alexandria, Suez, Minya and cities in the Nile Delta.

A 52-year-old protester died after inhaling teargas in Cairo, the second death since last week's decree that expanded Mursi's powers and barred court challenges to his decisions.

Tuesday's protest called by leftists, liberals and other groups deepened the worst crisis since the Muslim Brotherhood politician was elected in June, and exposed a divide between the newly empowered Islamists and their opponents.

Some protesters have been camped out since Friday in the Tahrir, and violence has flared around the country, including in a town north of Cairo where a Muslim Brotherhood youth was killed in clashes on Sunday. Hundreds have been injured.

Mursi's move provoked a rebellion by judges and battered confidence in an economy struggling after two years of turmoil.

Opponents have accused Mursi of behaving like a modern-day pharaoh, a jibe long leveled at Mubarak. The United States, a benefactor to Egypt's military, has expressed concern about more turbulence in a country that has a peace treaty with Israel.

Mursi's administration has defended his decree as an effort to speed up reforms and complete a democratic transformation. Opponents say it shows he has dictatorial instincts.

"The people want to bring down the regime," protesters chanted, echoing slogans used in the anti-Mubarak uprising.

"We don't want a dictatorship again. The Mubarak regime was a dictatorship. We had a revolution to have justice and freedom," said 32-year-old Ahmed Husseini.

The protest was a show of strength by the non-Islamist opposition, whose fractious ranks have been pushed together by the crisis. Well-organized Islamists have consistently beaten more secular-minded parties at the ballot box in elections held since Mubarak was ousted in February, 2011.

MORE POWERS

Some scholars from the prestigious al-Azhar mosque and university joined Tuesday's protest, showing that Mursi and his Brotherhood have alienated some more moderate Muslims. Members of Egypt's large Christian minority also joined in.

Mursi formally quit the Brotherhood on taking office, saying he would be a president for all Egyptians, but he is still a member of its Freedom and Justice Party.

The decree issued on Thursday expanded his powers and protected his decisions from judicial review until the election of a new parliament expected in the first half of 2013.

New York-based Human Rights Watch said it gives Mursi more power than the interim military junta from which he took over.

U.N. Secretary-General Ban Ki-moon noted judges challenged the decree. However, he told Austria's Die Presse newspaper: "I have also noted that Mursi wants to resolve the problem in a dialogue. I will encourage him to continue to do so."

Trying to ease tensions with judges outraged at the step, Mursi has assured Egypt's highest judicial authority that elements of the decree giving his decisions immunity would apply only to matters of "sovereign" importance. Although that should limit it to issues such as a declaration of war, experts said there was room for much broader interpretation.

In another step to avoid more confrontation, the Muslim Brotherhood canceled plans for a rival mass protest in Cairo on Tuesday to support the decree. Violence has flared in the past when both sides have taken to the streets.

But there has been no retreat on other elements of the decree, including a stipulation that the Islamist-dominated body writing a new constitution be protected from legal challenge.

"We came here to reject dictatorship and tyranny," said 50-year-old Noha Abol Fotouh. "The decree must be canceled and the constituent assembly should be reformed. All intellectuals have left it and now it is controlled by Islamists."

CRISIS

With its popular legitimacy undermined by the withdrawal of most of its non-Islamist members, the assembly faces a series of court cases from plaintiffs who claim it was formed illegally.

The new system of government to be laid out in the constitution is one of the issues at the heart of the crisis.

"The president of the republic must put his delusions to one side and undertake the only step capable of defusing the crisis: cancelling the despotic declaration," liberal commentator and activist Amr Hamzawy wrote in his column in al-Watan newspaper.

Mursi issued the decree on November 22, a day after he won U.S. and international praise for brokering an end to eight days of violence between Israel and Hamas around the Gaza Strip.

White House spokesman Jay Carney said on Monday that Mursi had played "an important role" in the truce. "Separately we've raised concerns about some of the decisions and declarations that were made on November 22," he said.

Mursi's decree was seen as targeting in part a legal establishment still largely unreformed from Mubarak's era, when the Brotherhood was outlawed.

Though both Islamists and their opponents broadly agree that the judiciary needs reform, Mursi's rivals oppose his methods.

Rulings from an array of courts this year have dealt a series of blows to the Brotherhood, leading to the dissolution of the first constitutional assembly and the lower house of parliament elected a year ago. The Brotherhood dominated both.

The judiciary blocked an attempt by Mursi to reconvene the Brotherhood-led parliament after his election victory. It also stood in the way of his attempt to sack the prosecutor general, another Mubarak holdover, in October.

In his decree, Mursi gave himself the power to sack that prosecutor and appoint a new one. In open defiance of Mursi, some judges are refusing to acknowledge that step.

One presidential source said Mursi wanted to change the make-up of the Supreme Constitutional Court, the body whose ruling that parliament was void led the house to be dissolved.

Mursi has repeatedly stated the decree will stay only until a new parliament is elected - something that can happen once the constitution is written and passed in a popular referendum.

(Additional reporting by Tom Perry, Seham Eloraby, Marwa Awad and Yasmine Saleh in Cairo and Michael Shields in Vienna; Writing by Edmund Blair and Tom Perry; Editing by Anna Willard, David Stamp and Alastair Macdonald)

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Insight: Rebels seizing initiative in long war for Syria

BEIRUT (Reuters) - Rebel strikes against military bases across Syria have exposed President Bashar al-Assad's weakening grip in the north and east of the country and left his power base in Damascus vulnerable to the increasingly potent opposition forces.

Rebel fighters, who have taken at least five army and air installations in the last 10 days, are still waging an asymmetrical war against a powerful army backed by devastating air power, and predict months of conflict still lie ahead.

Their tactics are gradually choking off Assad's forces in the northern provinces of Aleppo and Idlib, as well as the eastern oil region of Deir al-Zor, while in Damascus "there is a sense that the flames are licking at the door", a diplomat in the capital said.

The steady capture of military installations and arsenals is sapping the morale of Assad's forces and also ensuring a modest supply of new weapons to relatively ill-equipped rebels whose calls for a no-fly zone -- which proved crucial in the Libyan uprising -- have been ignored.

Although they have yet to seize control of a single city, or translate their dominance in swathes of rural Syria into "liberated" territory free of air and artillery strikes, rebels say that their increasing prowess on the battlefield and growing armories have finally allowed them to take the initiative.

"The difference is that we've gone from being on the defensive to thinking and acting on the offensive. We actually have the ability to work offensively now, since we have seized enough weapons," said a fighter with Islamist battalions in Damascus province, who used the nom de guerre of Abu al-Yaman.

As Syria's 20-month uprising to overthrow Assad has dragged on, killing 40,000 people, rebel strategy has evolved from quick opportunistic attacks to slow but carefully planned campaigns of siege and attrition.

Exploiting the military expertise of military officers who have defected from Assad's army, rebels have achieved significant successes by focusing on strategic roads and supply routes as well as military bases.

GUN SHIPS

The slow progress of the fighting can conceal rebel gains, especially when fighters are forced to retreat in the face of withering retaliation from Assad's MiG warplanes and helicopter gun ships.

Fighting in the cities, however, is still a challenge.

"We have rebel sieges and army defections, and then military air raids. Then sieges and defections and raids again, in a loop," said a wearied commander from Ahrar al-Sham brigade in Aleppo, where rebels have been battling Assad's forces since late July and control about half of Syria's biggest city.

"The countryside is somewhere where we can advance more, but inside the cities I still see the battle as long and difficult. I think we need several more months."

Another fighter, from the largely rebel-held province of Idlib on the Turkish border, said the battle to "liberate the northern frontier" was going well, while progress further south near the Jordanian border was more of a challenge.

"We still have a lot of work to do. We're not about to take the country but yes, I see a lot of progress in the last month."

Unlike the toppled leaders of North Africa who were dropped by their friends when trouble started, Assad still draws strength from Russia and China and from Iran, which is believed to be supporting him with arms and cash.

Divided by personal and ideological rivalries as well as geographical and military obstacles, the mainly Sunni Muslim rebels have also struggled to show common cause since they took up arms against Assad, who is from an Alawite minority linked to Shi'ite Islam.

An opposition coalition was formed earlier this month, aiming to bridge the rifts and bring the rebels under a unified structure - a first step towards overcoming Western reluctance to arm a rebel movement which includes radical Islamists.

Ali al-Ali, a fighter in the Ahrar al-Jabal al-Wustany brigade, said the rebels were slowly overcoming their splits.

"Our attacks are getting more coordinated locally," he told Reuters by Skype from Idlib province. "On the ground we have the advantage, (Assad's) power has deteriorated on the ground."

REBEL GAINS

The cumulative effect of the rebel gains has left Assad's power concentrated in the south around Damascus and in the Mediterranean provinces of Tartous and Latakia - the heartlands of Syria's Alawites.

The capital and the coastal regions are linked by the city of Homs, which bore the brunt of fighting earlier this year as Assad's forces bombarded rebel neighborhoods to keep their grip on Syria's third-biggest city. Homs itself has now been divided between rebels and Assad's forces.

"In the north and the east (of Syria) the tide has turned against the regime," said Andrew Tabler, a Syria expert at the Washington Institute for Near East Policy. "Where the game is much closer is along the coast, around Homs and Damascus."

The two main rebel gains of the last fortnight were the huge 46th Division army base, which sprawls over several square miles west of Aleppo, and the Mayadeen base in Deir al-Zor, which left rebels controlling 120 km (75 miles) of the Euphrates river north of the Iraqi border.

Around the capital itself, rebels have captured an air defense installation in the south of Damascus and a helicopter base situated among the eastern farmlands and towns which have been an opposition stronghold for months.

To the south-west the army has been bombarding rebels in the suburb of Daraya, determined to prevent them from holding another gateway into the capital.

The Damascus-based diplomat said Assad still had 70,000 to 80,000 soldiers stationed around the city and its outskirts. There are no clear figures for the size of the rebel brigades but they say they number tens of thousands nationwide.

In his rare televised appearances, the 47-year-old president does not look like a leader under siege. He appeared calm and relaxed in his latest meeting on Friday with the parliamentary speaker of his strongest regional ally, Iran.

Syria experts say Tehran has sent Revolutionary Guards and weapons to help Assad's military campaign and financial support to help prop up an economy reeling from a collapse in revenues and tens of billions of dollars of war damage.

They also say Lebanon's Shi'ite Muslim Hezbollah has dispatched militants to fight alongside Assad's forces - a charge Hezbollah has denied even though it has held several funerals for fighters killed performing "jihadi duties".

TRAIN CRASH

"People I have spoken to who are in touch with very senior Syrian officials report a sense of calm among generals and senior officials," the envoy in Damascus said. "I can't understand that, unless they are simply putting on a brave face".

"Every ordinary Syrian I speak to is worried. They see the train crash coming."

How soon the train crash comes is a matter of conjecture among military and political analysts who follow Syria.

The rebels themselves say their real test will come when fighters move on the capital for that final reckoning, an operation they are already planning. Some observers say the opposition may already have sleeper cells in Damascus while it tries to prepare a launch pad for attacks from outside the city.

There is no sign that rebels have the sophisticated equipment, weaponry and intelligence which would enable sleeper cells to overpower Assad's die-hard battalions, and which proved a game changer in Libya when the support of Western special forces helped topple Gaddafi after months of apparent stalemate.

But the rebels have struck deep in the capital - killing four close Assad aides in a devastating July 18 bombing.

One analyst, who asked not to be named because he remains in contact with Syrian officials, said the Syria conflict had undergone a "dramatic change in dynamics" in the last few weeks.

"If you look at the map, it hasn't changed so much. But the psychological situation is different."

"This is a regime engaged in a fighting retreat ... The more the opposition wins over regime bases, the more they acquire weapons. I think it's self-sustaining," he said, predicting a showdown within weeks.

"All this could be brought to a close, or it could lead to a multiplication of conflicts," he said voicing a widespread fear that Assad's overthrow, if it were to happen, might only be the close of the first chapter in a far longer sectarian war.

A regional security source said rebels were getting a steady flow of shoulder-held surface-to-air missiles from Saudi Arabia via Jordan.

But anxious to avoid a buildup of sophisticated weapons among militants, as happened in the 1980s in Afghanistan, the Gulf state was monitoring their use and limiting supplies.

"It's not like the rebels are being flooded with weapons," said Michael Stephens of the RUSI think-tank in Doha. "There is a gradual increase in weapons and capacity, and they are getting smarter."

(Writing by Dominic Evans; Editing by Samia Nakhoul and Giles Elgood)

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Saudi authorities detain families at rights protest

JEDDAH, Saudi Arabia (Reuters) - Saudi security forces detained dozens of men, women and children on Tuesday after they staged a rare protest outside a human rights group's office in Riyadh to demand the release of jailed relatives, activists said.

Protests are banned in the conservative kingdom, a U.S. ally that shows little tolerance towards dissent. But relatives have occasionally gathered outside government offices in the world's largest oil exporter to demand the release of prisoners they say have been held for long periods without trial.

"They detained six children, 23 women and around 30 men," Ali Alhattab, an activist told Reuters from the Saudi capital.

Activists posted pictures on social media showing a crowd surrounded by security forces. Reuters could not verify the images.

Saudi Arabia, which has been a target for al Qaeda attacks, says the prisoners are all held on security grounds. Activists say some are also detained for purely political activity and have never been charged.

An Interior Ministry spokesman did not immediately comment on Tuesday's incident.

The government has said in the past that prisoners accused of "terrorism-related" charges were undergoing a fair judicial process any relatives who protest are stopped and dealt with according to legal procedures.

Last month the kingdom convicted and sentenced 15 men to between three and 15 days in jail on charges of staging a sit-down demonstration outside a prison in September. The court also handed the men suspended sentences of between 50 and 90 lashes and suspended jail terms of between two and five months.

The incident was condemned by Human Rights Watch which said the Saudi Bureau of Investigation and Prosecution had charged a total of 19 men with 'instigating chaos and sedition' and 'gathering illegally'.

"I believe that such actions worsen the situation. Intimidating and confronting the families will not make them back down on their requests for fair trials," Alhattab said.

Saudi Arabia has not seen the kind of protests that toppled four Arab heads of state since the start of last year but small demonstrations have taken place from time to time in the Eastern Province, where the Sunni Muslim kingdom's Shi'ite minority live. Shi'ites complain of discrimination, which Saudi Arabia denies.

(Reporting by Asma Alsharif; Editing by Sami Aboudi and Angus MacSwan)

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Syria launches air strikes as combat rages in Damascus

BEIRUT (Reuters) - Syrian war planes attacked towns in the country's north and east and killed at least five civilians in a strike on an olive oil press as fighting raged in the capital Damascus on Tuesday, opposition activists said.

Rebels battled government forces in the Damascus suburb of Kfar Souseh, on the edge of the center of the capital, said the Syrian Observatory for Human Rights, a British-based monitoring group.

The latest fighting followed recent battlefield gains by the rebels in their struggle to topple President Bashar al-Assad although it was far from clear if a strategic breakthrough was likely any time soon.

Syrian state television said that two people were killed and four wounded in a "terrorist suicide car bomb" in Artouz, near Damascus. The Observatory said the explosion was caused by a car bomb next to a military police checkpoint.

Near the Old City, a second car bomb killed one person and blew the legs off another man, according to opposition activist Samir al-Shami. He said it was unclear if the car, a white Toyota, was rigged by Assad loyalists or rebels.

The rebels also shot down a military helicopter on Tuesday, according to video footage posted on YouTube which showed a missile hitting the aircraft.

The Local Coordinating Committee opposition group said the Free Syrian Army had downed a helicopter near the Sheikh Suleiman army base, 30 km (20 miles) northwest of the contested city of Aleppo.

Combat also took place in the Baba Amr district of Homs city, an area that was overrun by government troops in February, as well as in Aleppo, Deir al-Zor, Deraa, Idlib province and Hama province, the Observatory said.

A government jet dropped barrel bombs - cylinders packed with explosives and petrol - at the Abu Hilal olive oil press, 2 km (1.2 miles) west of Idlib city, activist Tareq Abdelhaq said.

At least five people were killed and five wounded in the attack, the Observatory said. Abdelhaq said at least 20 were killed and 50 wounded.

The victims were civilians waiting to press their olives for oil, according to activists, who acknowledged rebel fighters were in the area.

An estimated 40,000 people have been killed in Syria since March last year when protests inspired by the Arab Spring broke out against Assad, whose family has ruled autocratically for four decades. Assad has relied on fighter jets, helicopters and artillery to subdue the revolt, which started peacefully but has become a full-scale civil war.

Rebels have captured at least five army and air force installations in the past 10 days, putting pressure on Assad's forces in Aleppo and Idlib and the eastern oil region of Deir al-Zor.

The opposition are calling for international military aid, particularly against air attacks, but Western powers who support the uprising are wary of radical Islamist units among the rebels.

However, some anti-aircraft equipment has been seized from captured army bases.

AIR STRIKES

The government also launched air strikes on Deir al-Zor city and on the strategic town of Maraat al-Numan in Idlib province on Tuesday.

The rebel takeover of Maarat al-Numan last month effectively cut the main north-south highway, a route for Assad to move troops from the Damascus to Aleppo, Syria's largest city where rebels have taken a foothold.

Most foreign powers have condemned Assad, and Britain, France and Gulf countries have recognized an umbrella opposition group, the Syrian National Coalition, as the sole representative of the Syrian people.

But Assad has been able to rely on his allies, especially regional powerhouse Iran, to withstand the international challenge. Russia and China have also vetoed three United Nations Security Council resolutions that condemn Assad.

Nonprofit news website ProPublica reported yesterday that Russia sent 240 tonnes of banks notes to Damascus this summer. U.S. and European sanctions include a ban on minting Syrian banknotes.

(Editing by Jason Webb and Angus MacSwan)

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Gazans say "Thank you Iran" after Israel conflagration

GAZA (Reuters) - Gazans offered very public thanks to Iran on Tuesday for helping them in this month's fight against Israel, when Iranian-made missiles were fired out of the Palestinian enclave towards Jerusalem and Tel Aviv.

"Thank you Iran", said large billboards on three major road junctions in the Gaza Strip - the first time there has been such public acknowledgement of Iran's role in the arming of Islamic militants in the tiny territory.

The message was written in Arabic, English, Hebrew and Farsi. The posters also depicted the Iranian Fajr 5 rockets that were used for the first time to target Israel's two largest population centers. No one was injured in the attacks.

The billboards were not signed, but a senior official with the militant group Islamic Jihad, Khader Habib, said it was only natural to show gratitude for Iran's role in the conflict.

"Iranian rockets struck at Tel Aviv. They reached out to Jerusalem. Therefore it was our duty to thank those who helped our people," he told Reuters.

"We have distinctive, good relations with Iran and such a relationship will continue as long as Iran supports the Palestinian people and backs up the resistance," he added.

Israel launched an air offensive on November 14 with the stated aim of stopping Gaza militants from firing rockets at its southern towns and cities.

About 170 Palestinians, more than half of them civilians, died in the fighting that ended in a ceasefire last Wednesday. Six Israelis were also killed, four of them civilians.

Israel has always asserted that arch-foe Tehran supplied Gaza with weapons, but until the latest conflict both Iran and Gaza's dominant Islamist group Hamas had side-stepped the issue, acknowledging only financial backing and warm political ties.

During the eight-day conflagration, the Iranian speaker of parliament, Ali Larijani, said Iran was "honored" to have provided Gaza with military aid. Following the ceasefire, Hamas leader Khaled Meshaal thanked Iran for arms and funding.

The public statements appeared aimed at dispelling speculation that the mainly Sunni Muslim Gaza Strip was shutting the door on Shi'ite Iran and turning instead to neighboring Egypt for support and protection.

Israeli analyst Meir Javedanfar said he thought the Iranians would regret telling the world they supplied Hamas with arms.

"Now that such high-ranking officials openly admit to having supplied weapons to groups in Gaza, the job of isolating Iran will be even easier than before," said Javedanfar, an Iranian expert at the Interdisciplinary Center (IDC) in Herzliya.

Israel and many Western countries say Iran is developing nuclear weapons and have imposed increasingly stringent sanctions on the Islamic Republic to get it to halt its uranium enrichment drive. Tehran says its atomic program is peaceful.

Hamas, which has ruled Gaza since 2007, refuses to recognize Israel's right to exist and is shunned as a terrorist organization by the United States and the European Union.

(Editing by Crispian Balmer and Alison Williams)

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Obama urges restraint in tense Asian disputes

PHNOM PENH (Reuters) - President Barack Obama urged Asian leaders on Tuesday to rein in tensions in the South China Sea and other disputed territory, but stopped short of firmly backing allies Japan, the Philippines and Vietnam in their disputes with China.

The comments illustrate the challenge facing newly re-elected Obama in managing Sino-U.S. ties that have become more fraught across a range of issues, including trade, commercial espionage and the territorial disputes between Beijing and Washington's Asian allies.

"President Obama's message is there needs to be a reduction of the tensions," Deputy National Security Adviser Ben Rhodes said after the East Asia Summit in the Cambodian capital Phnom Penh. "There is no reason to risk any potential escalation, particularly when you have two of the world's largest economies - China and Japan - associated with some of those disputes."

The comments appeared carefully calibrated not to offend either side.

They follow a three-day trip by Obama to three strategically important Southeast Asian countries: old U.S. ally Thailand, new friend Myanmar and China ally Cambodia, in a visit that underlines Washington's expanding military and economic interests in Asia under last year's so-called "pivot" from conflicts in the Middle East and Afghanistan.

Obama's attention was divided as he tried to stay on top of the unfolding crisis in Gaza. He dispatched Secretary of State Hillary Clinton from the summit to the Middle East for a round of troubleshooting talks in Israel, the West Bank and Egypt.

A decades-old territorial squabble over the South China Sea is entering a new and more contentious chapter, as claimant nations search deeper into disputed waters for energy supplies while building up their navies and military alliances with other nations, particularly with the United States.

Beijing claims almost the entire sea as its territory based on historical records, setting it directly against U.S. allies Vietnam and the Philippines, while Brunei, Taiwan and Malaysia also lay claim to parts.

PHILIPPINE PROTEST

The Philippines lodged a formal protest on Tuesday against summit host Cambodia, accusing the Chinese ally of trying to stifle discussions on the South China Sea when leaders of the Association of Southeast Asian Nations (ASEAN) met on Monday.

On Tuesday, China defended its stand to not discuss the South China Sea issue at multilateral forums. Beijing prefers to deal with other claimants on a bilateral basis.

"We do not want to bring the disputes to an occasion like this," Chinese Premier Wen Jiabao told the summit, according to Chinese Deputy Foreign Minister Fu Ying.

"We do not want to give over emphasis to the territorial disputes and differences, and we don't think it's a good idea to spread a sense of tension in this region," Wen added.

Several leaders at the summit raised the South China Sea issue, including a dispute over Scarborough Shoal, where Philippine and Chinese ships faced off in April. That prompted a firm response from China, Fu told reporters.

"Huangyan Island (Scarborough Shoal) is China's territory," Fu quoted Wen as telling the summit. "China's act of defending its sovereignty is necessary and legitimate."

The South China Sea failed to earn a single mention in an 11-page concluding summit statement read by Cambodian Prime Minister Hun Sen, a victory for China, which has sought to keep it off the formal agenda.

Hun Sen lived up to his authoritarian image, taking no questions in a 29-minute news conference. He said he was too tired.

Earlier, in his first meeting with a Chinese leader since his re-election, Obama said Washington and its chief economic rival must work together to "establish clear rules of the road" for trade and investment. But he stopped short of accusing China of violating those rules, a hot topic in his re-election campaign.

"I'm committed to working with China and I'm committed to working with Asia," Obama told Wen in a bilateral meeting. Wen highlighted "the differences and disagreements between us" but said these could be resolved through trade and investment.

Japanese Prime Minister Yoshihiko Noda said mounting Asian security problems raise the importance of the U.S.-Japan alliance, a veiled reference to tensions over Chinese sovereignty claims and maritime disputes.

"With the increasing severity of the security environment in East Asia, the importance of the Japan-U.S. alliance is increasing," Noda told Obama.

STRAINED TIES

Sino-Japanese relations are also under strain after the Japanese government bought disputed islands known as Senkaku in Japan and Diaoyu in China from a private Japanese owner in September, triggering violent protests and calls for boycotts of Japanese products across China.

China says both disputes involve sea lanes vital for its economy and prefers to address conflicts in one-on-one talks.

Hun Sen said on Sunday Southeast Asian leaders agreed not to internationalize the row over the South China Sea and to confine talks to between ASEAN and China -- a claim disputed by Philippine President Benigno Aquino.

A stern-faced Philippine Foreign Minister Albert del Rosario said his delegation had been shocked when a Cambodian official told a news conference that ASEAN leaders had reached a consensus at their summit on Sunday.

"Consensus means everybody. I was there, the president (Aquino) was there and we're saying we're not with it because there's no consensus," del Rosario told reporters. "How can they say there's consensus when we're saying there's no consensus?"

It was the second time in five months Cambodia was accused of bowing to Chinese pressure and thwarting regional debate on the issue. A July ASEAN foreign ministers meeting, also in Phnom Penh, broke down in acrimony and failed to agree on a communique for the first time, just weeks after the standoff between a Philippine warship and Chinese vessels.

(Additional reporting by Matt Spetalnick, Stuart Grudgings, Prak Chan Thul and Manuel Mogato. Writing by Jason Szep.; Editing by Ron Popeski)

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Attacker stabs guard at U.S. embassy

TEL AVIV (Reuters) - A man apparently suffering from mental health problems stabbed a security guard at the U.S. embassy in Tel Aviv on Tuesday and was apprehended, police said.

"A Mazda car stopped next to the U.S. embassy and a man got out carrying a red bag and a pitchfork," said David Cohen, 48, who told Reuters he witnessed the incident while jogging along Tel Aviv's Mediterranean promenade.

"He began to run toward the security guards. They saw him, took their guns out and told him to get down on the ground," Cohen said.

"He continued running and then they fired in the air and ordered him again to lie down. He continued to advance. They jumped on him and took his bag away."

Police said one of the guards was slightly wounded and the attacker was taken into custody.

"It appears he was mentally unbalanced," Tel Aviv police chief Yoram Ohayon told reporters.

Israel Radio said the assailant was a 41-year-old Israeli with a criminal record.

(Writing by Ori Lewis, Reporting by Maayan Lubell and Baz Ratner, Editing by Jeffrey Heller)

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Analysis: Hollande's softly-softly plan needs tough execution

PARIS (Reuters) - After six months keeping the world guessing about whether he had a vision for fixing France's sickly economy, President Francois Hollande has unveiled a battle plan "à la française" to ease companies' labor costs and trim public spending.

But the softly-softly pace of adjustment may be too slow to satisfy financial markets after Moody's on Monday became the second credit ratings agency to strip Paris of its AAA rating, citing both a loss of competitiveness and low growth.

Hollande's "competitiveness pact" aims to create 300,000 jobs and lift output by half a percent over five years by granting 20 billion euros a year in corporate tax relief and pruning public spending by 1 percent.

The measures will be funded by modest sales tax rises from 2014, sparing households immediate pain. Tweaks to labor laws will follow next year to make hiring and firing somewhat more flexible while extending the length of job contracts.

The plan is bold for a left-wing French government, yet it falls short of what business leaders wanted and critics say it may be too timid to pull the economy out of decline in time.

Moreover, a key plank - spending cuts of 12 billion euros a year - will require sharp reductions in welfare payments or local government, hard to sell to a parliament full of mayors and civil servants, and an electorate including more than 5 million public sector workers.

"We've taken a big step forward but we've lost time. We should have started two months ago," said a government source. Some in Hollande's team had nudged the president to move sooner but found that "he does not like to be rushed".

"Hollande has not said where the 12 billion euros will come from because he doesn't know. None of us knows. There would be a lot of resistance to public sector cuts," the source said.

Most economists have applauded Hollande's move to embrace reform, despite muttering from Berlin that the measures should be bolder.

But they say success, in the face of stalled growth and rising 10 percent unemployment, depends on Hollande being able to implement all his plans - corporate tax relief, labor reform and spending cuts - to the letter.

That will hinge on acquiescence from a disgruntled public, on the euro zone avoiding further crisis or a deeper lurch into recession, and on investors keeping French borrowing costs low.

"If he can meet all these commitments it would be remarkable and he could really make a difference. If he only partially meets them the results are harder to predict," said Elie Cohen, an economist who advised Hollande during his election campaign.

Cohen sees a risk of France being sucked into the sort of downward spiral that has afflicted Greece, Portugal, Spain and to an extent Italy.

"A euro zone recession could be decisive," he added. "If France misses its growth targets and then its deficit targets, he'll need to do a third austerity plan on top of these measures and that would look seriously like a Mediterranean scenario."

TIME BOMB?

Hollande is under growing pressure from foreign investors concerned at France's strained public finances, flatlining economy and industrial decline that has led to a 70 billion euro trade deficit.

Paris also faces new competition for its exports from Spain and Italy, which have been forced by their debt crises to reform their labor and product markets faster.

Hollande's November 6 announcement of the tax rebates was his response to an independent review of competitiveness that recommended 30 billion euros in direct cuts to labor costs.

The rebates will be linked to payroll size in a way that the government says is equivalent to a 6 percent reduction in labor costs from 2013.

Hollande's economic advisers, who include a U.S.-educated academic and a former investment banker, expect the rebates to have a similar effect to an internal devaluation, raising profit margins, especially for labor-intensive manufacturers and small firms, for a couple of years until prices adjust.

The government reckons this could boost exports by 10-15 billion euros over two years, shaving the non-energy trade deficit.

"All other things being equal, this will improve the current account by quite a bit," said a government adviser, whose position bars him from being quoted by name.

JOB TRICKLE

Naysayers note that any trickle of jobs created through the tax rebates will be outstripped by continuing job losses as long as economic growth remains below 1 percent.

A rule of thumb for France is that employment stabilizes once growth reaches 1.5 percent, and it takes 2 percent expansion or more to achieve a net increase in jobs.

"The tax rebate plan may enable us to absorb some of the recession, by adding some jobs, but it won't boost economic activity," said Philippe Ansel, an economist with Fondation Concorde, a business-funded, economically liberal think-tank.

"France remains squashed between Germany, with its high-quality products, and Spain and Italy, which have made bigger efforts to reduce their labor costs."

Like other critics, Ansel says the rebates are worth only a net 10 billion euros to companies since they come on top of 10 billion euros a year in corporate tax rises in the 2013 budget.

His think-tank advocates a 50 percent cut in payroll contributions for companies exposed to foreign competition.

Hollande is also under fire for capital gains tax changes that will penalize investors in start-ups as well as failing to make good on a promise to ease the tax burden on corporate profits that are reinvested.

"You'll see the impact of these measures in 2014 and 2015. There will be less wheat to harvest," said Ansel.

NOT CRAZY, BUT DELIBERATE

French public spending accounts for 56 percent of economic output, second only to Denmark at 58 percent, and the tax take from companies amounts to 17.9 percent of gross domestic product, compared to just 4.3 percent in Denmark.

Departing from Socialist dogma, Hollande questioned at his first presidential news conference this month whether the high spending bill had brought the French a better quality of life.

Hollande sent his prime minister to Germany to tell Chancellor Angela Merkel that France would reform at its own pace and would not be pressured to go faster.

His advisers dismiss accusations of foot-dragging from Berlin and by The Economist magazine.

"Cutting 60 billion euros (from public spending) in five years is anything but timid. The idea it's not ambitious is insane," said Thomas Philippon, a finance ministry adviser.

"Doing crazy things isn't going to work. You have to do things gradually but deliberately and in a sustainable way."

Yet Hollande's economic team knows the pressure is on.

Labour Minister Michel Sapin told Reuters that beyond the labor flexibility accord the government is seeking, it could look at making people pay into the pension system for longer, another topic previously taboo for the French left.

"It's fine to tell the Germans we'll reform at our own pace - but we do have to reform," said the first government source. "Hollande is a very prudent person, and that's fine, but if you spend too much time talking, you risk getting nowhere."

(Reporting By Catherine Bremer; Editing by Paul Taylor)

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Frail Turkish ex-president appears in landmark coup trial

ANKARA (Reuters) - A retired Turkish general who seized power in 1980, sending thousands to jail and to the gallows, faced a court on Tuesday by video link from hospital, looking ill and gaunt, in a trial marking a watershed in Turkey's emergence from army domination.

Kenan Evren, who governed as President into the late 1980s, says the coup was necessary to save a country beset by street fighting. Virtually the entire political class was rounded up and interned, thousands were tortured and many more disappeared.

The 95-year old, dressed in a black jumper, a sheet pulled up over his legs, cut a brittle figure, a shadow of the strongman who led Turkey for nine years.

His cheeks sunken, he appeared tired and expressionless, giving little indication of whether he understood what was being said in the courtroom as the indictment against him was read.

A nurse helped him lie up in bed and he leant over occasionally to consult a lawyer sat in his room at an Ankara military hospital. He spoke to confirm his father's and mother's names, date and place of birth as the court went through the formality of confirming his identity.

He gave his monthly income as 13,330 Turkish lira ($7,400).

Turkey remains haunted by the coup, its third in 20 years. Evren's appearance on television screens in court epitomized how far the country has come in taming a once all-powerful military.

Victims' lawyers have said Evren should be treated no differently to former Egyptian leader Hosni Mubarak and Chilean dictator General Augusto Pinochet. Both were forced to appear in court, one on a bed behind bars, the other in a wheelchair.

The once-dominant secularist generals have seen their power and prestige eroded sharply over the last decade in the course of a series of coup trials and political reforms under the rule of Prime Minister Tayyip Erdogan's Islamist-rooted AK Party.

A Turkish court in September sentenced more than 300 military officers to jail for plotting to overthrow Erdogan's government almost a decade ago in a trial that underscored civilian dominance over the armed forces.

Evren has said he does not regret the coup, arguing it restored order after years of chaos in which 5,000 people were killed in street violence between leftist and right-wing groups.

He was not expected to give testimony until Wednesday at the earliest, which will be the second of three days of hearings.

"GOVERNMENT SHOW"

Many Turkish secularists broadly supported the reining in of the army, but argue that coup conspiracy trials have been used as a pretext to round up scores of the government's political opponents and create a climate of fear.

Judges previously accepted requests by political parties, parliament and trade unions to be co-plaintiffs in the case, but there was skepticism from some about whether the Evren trial would bring justice to the victims of the coup.

Former minister Yasar Okuyan, who was among thousands jailed after the coup, was also dismissive of the trial, which attracted little public interest at the court house in Ankara.

"This is just a theatre ... This is a 30-year-old problem, a legal solution will not emerge. It's a government show," Okuyan told Reuters outside the courtroom.

In April, the court rejected an appeal by prosecutors to arrest Evren, disappointing victims who had hoped his detention would guarantee he appeared in court in person. His ill health precluded such an appearance.

Also appearing on the split screen television was the other defendant, retired air force commander Tahsin Sahinkaya, who was being treated at an Istanbul military hospital.

The generals long saw it as their right to intervene in political affairs and if necessary topple the government to safeguard the secular order set up by soldier-statesman Mustafa Kemal Ataturk after 1923.

Apart from the need to end the killings, the coup leaders were also worried by what they saw as a rising Islamist threat to the secular republic following the 1979 Islamic revolution in neighboring Iran. ($1 = 1.7978 Turkish liras)

(Writing by Daren Butler; Editing by Nick Tattersall and Ralph Boulton)

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Argentina's Fernandez faces her first general strike

BUENOS AIRES (Reuters) - Public transportation in Argentina as well as grain shipments from the agricultural powerhouse halted on Tuesday for a 24-hour strike over taxes called by a union boss once allied with the government.

The work stoppage by bus drivers, train conductors and port, airline and bank workers follows wide protests held on November 8 over high crime, soaring inflation and the policy response of President Cristina Fernandez.

The Peronist leader has seen her popularity tumble since easily winning re-election in October last year, as inflation runs at about 25 percent despite a slowing economy, according to private economists. The government publishes much lower inflation data, long dismissed by the markets as inaccurate.

"The strike is a consequence of slow economic growth and high inflation, which the government does not recognize and therefore does not reflect through adjustments in the sliding income tax scale," said Ignacio Labaqui, who analyzes Argentina for emerging markets consultancy Medley Global Advisors.

The International Monetary Fund has given Argentina roughly until the end of the year to improve its murky inflation reporting or risk sanctions.

Farmers also joined the protest led by Hugo Moyano, a gruff former truck driver once closely linked to Fernandez but now a leading opposition figure. As head of the country's CGT labor federation, Moyano wants lower taxes for workers to help compensate for inflation.

This is the first general strike that Fernandez has faced in nearly five years in office and the first to hit the country in a decade.

The work stoppage increases the stakes in the political battle between the president and Moyano. Ties between the two turned sour following the death of Fernandez's husband and predecessor as president, Nestor Kirchner, in late 2010.

Moyano's CGT federation split in two earlier this year, with his allies re-electing him as leader in a vote rejected by rival union bosses aligned with Fernandez. The fracture in the umbrella group risks deepening labor unrest as double-digit inflation stokes wage demands.

"This general strike raises the possibility that she is losing control of the street and it puts the unions that are allied with her in an uncomfortable position," Labaqui said.

Fernandez is moving to shore up her base. Her allies in Congress last month lowered Argentina's voting age to 16 from 18, a change that could help the politically ailing president court the youth vote ahead of 2013 mid-term elections.

Argentina is the world's top exporter of soy oil, needed to make biofuels, and soymeal used to feed cattle as far away as China, where the emerging middle class is clamoring for beef steak. The South American country also is the second biggest corn exporter after the United States.

"This (strike) was necessary, unfortunately," said Eduardo Buzzi, who heads the Argentine Agrarian Federation, which represents small-scale farms. "There is no way to dialogue ... This is the most anti-farm government Argentina has ever had."

The agricultural sector has long quarreled with Fernandez over the 35 percent export tax her government puts on soybean exports and curbs it places on corn and wheat shipments.

Calls went unanswered at the main grains port of Rosario and the usually noisy, truck-jammed entrance to the port of Buenos Aires was still, with activity expected to resume on Wednesday. The local stock and bonds market was also unusually quiet.

(Writing and additional reporting by Hugh Bronstein; Editing by Bill Trott)

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Assad troops fight to oust rebels from Damascus

AMMAN (Reuters) - Syrian government troops backed by tanks battled to oust rebel forces from an opposition stronghold in a Damascus suburb on Tuesday in the heaviest fighting in the capital for months.

In action in the country's north, rebel fighters stormed an air defense base that President Bashar al-Assad's military had used to bombard areas near the Turkish border.

On the international front, the Turkish foreign minister said NATO states had agreed to supply Turkey with a Patriot missile system to defend against Syrian cross-border shelling.

Although the deployment would be for defensive purposes only, it nonetheless marked a hardening in the foreign opposition to Assad.

The rebels also received a diplomatic lift with Britain officially recognizing the opposition Syrian National Coalition, set up this month to boost their chances of securing foreign aid and arms, as the legitimate representative of the Syrian people.

It was the ninth country to do so following France, Turkey and the Gulf Arab states.

After months of slow progress marked by poor organization and supply problems, the rebels have captured several army positions in outlying regions in the last week, including a Special Forces base near Aleppo, Syria's commercial hub.

They are also trying to take the 20-month-old revolt to the heart of Damascus, Assad's seat of power, and have dubbed this week "March to Damascus Week".

Elite Republican Guard troops backed by tanks attacked the rebel stronghold of Daraya on the city's southwestern edge and were met by fierce resistance from rebels, who hung on to their positions despite days of aerial bombardment, opposition sources said.

Twelve people were killed on Monday in Daraya, mostly by aerial bombing preparing for the ground offensive, activists said. Thousands of residents had fled to nearby suburbs.

A Western diplomat following the fighting said Assad had to show he could repel the rebel challenge to Damascus.

"He has to show that letting the bases fall in and round Damascus is only temporary while he begins to consolidate resources and personnel and deals with the struggles in the east," the diplomat said.

Also on Tuesday, two mortar rounds hit the Information Ministry building in Damascus, causing damage but no casualties, state television said. It blamed "terrorists" for the attack, the usual government term for anti-Assad forces.

On Monday, rebels seized the headquarters of an army battalion near the southern gate of Damascus, the nearest military base to the capital reported to have fallen to opposition fighters.

In the north, opposition sources said rebel fighters had captured sections an air defense base at Sheikh Suleiman, 18 km (11 miles) from the Turkish border and 30 km (20 miles) northwest of Aleppo.

"The fighters have taken three artillery pieces and have entered most of the base. Fighter jets are flying over the area to try and force them out," said Abu Mujahed al-Halabi, an activist with the opposition Sham News Network.

A rebel source said the fighters seized large stocks of explosives and would withdraw to avoid retaliatory air strikes.

"Assad's forces use the base to shell many villages and towns in the countryside. It is now neutralized," the source said.

MISSILES ON THE BORDER

In Ankara, Turkish Foreign Minister Ahmet Davutoglu said NATO states had agreed to supply Turkey with an advanced Patriot missile system to defend against Syrian attacks. Talks on its deployment are in the final stage, he said.

In recent months artillery and mortar fire from Syria has landed inside Turkey, increasing concern that the anti-Assad uprising could turn into a regional conflagration.

Turkey, Gulf Arab states and Western powers have all called for Assad - whose Alawite family have ruled Sunni Muslim-majority Syria in autocratic fashion for four decades - to relinquish power. Assad counts on the support of long-time ally Russia and Shi'ite Iran.

NATO Secretary General Anders Fogh Rasmussen said on Monday that any missile deployment would be a defensive measure and not to enforce a no-fly zone over Syria.

Although the rebels have taken large swathes of land, they are almost defenseless against the government's air force. They have called for an internationally enforced no-fly zone, a measure that helped Libyan rebels overthrow dictator Muammar Gaddafi last year.

Despite strong censure of Assad, Western powers have shied away from direct military involvement.

But the political campaign against Assad took a step forward on Tuesday when British Foreign Secretary William Hague announced that Britain had decided to recognize the new coalition of Syrian revolutionary and opposition forces as the people's sole legitimate representative.

(Reporting by Khaled Yacoub Oweis in Amman; Oliver Holmes, Erika Solomon and Dominic Evans in Beirut; Mohammed Abbas in London, Gulsen Solaker and Ece Toksabay; Writing by Angus MacSwan)

(This story was corrected to remove reference to Italy giving diplomatic recognition to the Syrian opposition. It has recognised the group as "legitimate representatives".)

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Poland arrests bomb plotter linked to Norway's Breivik

WARSAW (Reuters) - Polish authorities have arrested a radical nationalist who planned to blow up parliament and had links to the right-wing extremist who murdered dozens of people in Norway last year, they said on Tuesday.

The suspected plot - to detonate a bomb outside parliament when the country's most senior officials were inside - was the first of its kind since Poland threw off Communist rule more than 20 years ago.

It is likely to bring renewed scrutiny on radical right-wing groups inside Poland, which are fiercely opposed to the liberal government, and on the way extremists intent on violence share information with each other across Europe.

"This is a new and dramatic experience," said Prime Minister Donald Tusk, who, according to prosecutors, was one of the intended targets of the assassination plot, along with the president. "This should be a warning."

Prosecutors said the suspect, a 45-year-old scientist who works for a university in the southern city of Krakow, planned to plant four metric tons of explosives in a vehicle outside parliament and detonate it remotely.

The plot had parallels with Anders Behring Breivik, the Norwegian who set off a bomb in Oslo last year and then went on a gun rampage on a nearby island, killing a total of 77 people.

"The would-be bomber did not hide his fascination with Breivik. This should not be ignored," Tusk told a news conference.

The prime minister said that investigators had found practical connections to Breivik too: the Norwegian bought bomb components in Poland, he said, and an analysis of his contacts helped lead Polish intelligence to the suspect.

Authorities in Norway said they had been in touch with their Polish counterparts but gave no details.

Briefing reporters in the Polish capital, prosecutors said the suspect had assembled a small arsenal of explosive material, guns and remote-controlled detonators and was trying to recruit others to help him.

A video recording taken from the suspect, who has not been publicly identified, showed what prosecutors said was a test explosion he conducted, sending up a huge cloud of dust and leaving a large crater in the ground.

"He claims that he was acting on nationalistic, anti-Semitic and xenophobic motives," prosecutor Mariusz Krason said.

"He believed the situation in the country is going in the wrong direction, described the people ruling Poland as foreign and said they were not true Poles."

"He carried out reconnaissance in the neighborhood of the Sejm (parliament). This building was to be the target of the attack," Krason said.

EUROPEAN TIES

Poland is one of several European countries where far-right groups have become more visible in the past few years, a trend some scholars say is partly linked to hardship caused by the financial crisis.

In Hungary, opinion polls show strong support for the far-right Jobbik opposition party. Greece's ultra-nationalist Gold Dawn is backed by 10 percent of the population.

Most right-wing groups renounce violence, but some on the margins are more radical.

Roger Eatwell, a professor at Britain's Bath University who studies the far right, said though extremists intent on violence did not operate in networks, they do share information across Europe's borders.

"They look at each other through the Internet, they sometimes correspond with each other through the Internet, though they have to be careful because that is monitored," he said. "The bad news is that they are very hard to police."

In Poland, society is polarized between liberals, who back the government, and a substantial number of people who believe the country is neglecting its Catholic roots and succumbing to foreign influence.

A rally in the capital, Warsaw, this month by right-wing nationalists turned violent. Youths in the crowd, some of whom had been chanting anti-Semitic slogans, started throwing flares and stones at police.

Polish prosecutors on Tuesday produced evidence suggesting the suspect was planning a sophisticated attack on parliament.

They showed photographs of pistols and bags of ammunition which they said he had bought in Poland and Belgium. They also showed several vehicle license plates, both Polish and German, which they said had been found among his belongings.

They said the suspect had used his scientific background to assemble the explosives himself. "He is a specialist in the field," prosecutor Krason said.

Officials said that they had found explosive substances including hexogen and tetryl, as well as detonators that could be triggered remotely using a mobile telephone.

The dean of the Agricultural University in Krakow, where prosecutors said the suspect worked, said the man had never given any reason for suspicion.

"It never occurred to us that at our school there could be a person involved in such matters. There were no indications from his co-workers that anything unusual was happening," Roman Sady said.

(Additional reporting by Wojciech Zurawski in Krakow, Karolina Slowikowska and Chris Borowski in Warsaw, and Balazs Koranyi in Oslo; Writing by Christian Lowe; Editing by Robin Pomeroy)

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Colombia, FARC peace talks off to good start: rebel

HAVANA (Reuters) - Peace negotiations between Colombia and Marxist guerrillas are off to a good start in Cuba, a rebel negotiator said on Tuesday, after delays and rocky moments in the weeks before talks began to end Latin America's longest-running insurgency.

Tempered by a history of failure, Colombia's government and the Revolutionary Armed Forces of Colombia, known as FARC, started discussions on Monday with rebels calling a unilateral truce, boosting hopes for an end after nearly 50 years of fighting.

Rebel negotiator Jesus Santrich, wearing a gray jacket and dark neck scarf, told reporters outside a Havana convention center that the first session on Monday went smoothly.

"We're moving ahead at a good pace, on the right track and trying to make sure of the full participation of the public," he said in brief comments before entering the second day of talks.

Santrich, who is part of the FARC's political wing, spoke from a podium with microphones in a change of plans for the negotiators to stay mostly mum and out of sight of the media.

The government negotiators, led by former vice president Humberto de la Calle, made no comment upon their arrival.

Colombian President Juan Manuel Santos is betting a decade of U.S.-backed blows against the FARC has left the group sufficiently weakened to seriously seek an end to the war.

This is the third try at peace with the drug-funded rebels since they formed back in 1964. Past discussions ended in shambles, even strengthening the guerrillas' ability to attack civilian and military targets.

In a sign welcomed by war-weary Colombians and politicians alike, the guerrilla group called a two-month unilateral ceasefire on Monday, the first truce in more than a decade.

But the government reiterated its position that it would not halt military operations until a final peace deal is signed and expressed doubt the FARC was serious about its ceasefire pledge.

The negotiations have begun with the complex issue of rural development, with four equally thorny topics - ending the war, the political and legal future of the rebels, the drug trade and compensation for war victims - still to come.

The agenda is aimed at addressing some of the group's long-held concerns, but also finding redress for the tens of thousands of lives lost and millions of people displaced in the conflict.

De la Calle said on Sunday in Bogota that the first session was expected to last about 10 days before taking a break, with the date for the next round still to be decided.

Santos has said he wants an agreement within nine months, but the rebels say the process could take much longer because of the many complicated issues to be settled.

(Reporting by Jeff Franks; Editing by Bill Trott)

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Gaza truce agreed, Hamas says, to take effect in hours

GAZA/JERUSALEM (Reuters) - An Egyptian-brokered ceasefire in the Gaza conflict will go into effect later on Tuesday, a Hamas official said.

There was no immediate Israeli comment. Prime Minister Benjamin Netanyahu said earlier he was open to a long-term deal to halt Palestinian rocket attacks on his country.

"An agreement for calm has been reached. It will be declared at 9 o'clock (1900 GMT) and go into effect at midnight (2200 GMT)," Hamas official Ayman Taha told Reuters from Cairo, where efforts have been under way to end seven days of hostilities.

U.S. Secretary of State Hillary Clinton was heading to the region from Asia and was expected in Jerusalem late on Tuesday for talks with Netanyahu on Wednesday.

Earlier, Egypt's state media quoted Egyptian President Mohamed Mursi as announcing "that the farce of Israeli aggression against the Gaza Strip will end on Tuesday"

Mursi said, according to the reports, that "efforts to conclude a truce between the Palestinian and Israeli sides will produce positive results in the next few hours".

Amid international efforts mounted to stop the fighting and avert a possible Israeli ground invasion of the densely populated Gaza Strip, Israel pressed on with air strikes and Palestinian rockets flashed across the border on Tuesday.

"No country would tolerate rocket attacks against its cities and against its civilians. Israel cannot tolerate such attacks," Netanyahu said with U.N. Secretary-General Ban Ki-moon, who arrived in Jerusalem from talks in Cairo, at his side.

"If a long-term solution can be put in place through diplomatic means, then Israel would be a willing partner to such a solution," he said.

"But if stronger military action proves necessary to stop the constant barrage of rockets, Israel will not necessary to do what is necessary to defend our people," said Netanyahu, who is favored to win a January general election.

Hamas leader Khaled Meshaal said on Monday that Israel must halt its military action in the Gaza Strip and lift the blockade of the Palestinian territory in exchange for a truce.

Israel's military on Tuesday targeted about 100 sites in Gaza, including ammunition stores and the Gaza headquarters of the National Islamic Bank. Gaza's Hamas-run Health Ministry said six Palestinians were killed.

Israeli police said more than 150 rockets were fired from Gaza by late afternoon, many of them intercepted by Israel's Iron Dome system. Ten people were wounded in Israel, the military and an ambulance service said.

Medical officials in Gaza said 126 Palestinians have died in a week of fighting, the majority of them civilians, including 27 children.

Three Israelis died last week when a rocket from Gaza struck their house.

In an attack claimed in Gaza by Hamas's armed wing, a longer-range rocket targeted Jerusalem on Tuesday for the second time since Israel launched the air offensive with the declared aim of deterring Palestinian militants from launching rocket salvoes that have plagued its south for years.

The rocket, which fell harmlessly in the occupied West Bank, triggered warning sirens in the holy city about the time Ban arrived in Jerusalem for truce discussions.

In the Gaza Strip on Tuesday, Hamas executed six alleged collaborators, whom a security source quoted by the Hamas Aqsa radio "were caught red-handed" with "filming equipment to take footage of positions". The radio said they were shot. Militants chained one body to

A delegation of nine Arab ministers, led by the Egyptian foreign minister, visited Gaza in a further signal of heightened Arab solidarity with the Palestinians.

Fortified by the ascendancy of fellow Islamists in Egypt and elsewhere, and courted by Sunni Arab leaders in the Gulf keen to draw the Palestinian group away from old ties to Shi'ite Iran, Hamas has tested its room for maneuver, as well as longer-range rockets that have also reached the Tel Aviv metropolis.

Egypt, Gaza's other neighbor and the biggest Arab nation, has been a key player in efforts to end the most serious fighting between Israel and Palestinian militants since a three-week Israeli invasion of the enclave in the winter of 2008-9.

The ousting of U.S. ally Hosni Mubarak and the election of Mursi is part of a dramatic reshaping of the Middle East wrought by Arab uprisings and now affecting the Israeli-Palestinian conflict.

Mursi, whose Muslim Brotherhood was mentor to the founders of Hamas, on Monday took a call from Obama, who told him Hamas must stop rocket fire into Israel - effectively endorsing Israel's stated aim in launching the offensive last week. Obama also said he regretted civilian deaths - which have been predominantly among the Palestinians.

Mursi has warned Netanyahu of serious consequences from an invasion of the kind that killed more than 1,400 people in Gaza four years ago. But he has been careful not to alienate Israel, with whom Egypt's former military rulers signed a peace treaty in 1979, or Washington, a major aid donor to Egypt.

Addressing troops training in southern Israel, Defence Minister Ehud Barak said: "Hamas will not disappear but the memory of this experience will remain with it for a very long time and this is what will restore deterrence."

But he said: "Quiet has not yet been achieved and so we are continuing (the offensive) ... there are also diplomatic contacts -- ignore that, you are here so that if the order for action must be given - you will act."

Hamas said four-year-old twin boys had died with their father when their house in the town of Beit Lahiya was struck from the air during the night. The children's mother was critically wounded, and neighbors said the occupants were not involved with militant groups.

Israel had no immediate comment on that attack. It says it takes extreme care to avoid civilians and accuses Hamas and other militant groups of deliberately placing Gaza's 1.7 million people in harm's way by placing rocket launchers among them.

Nonetheless, fighting Israel, whose right to exist Hamas refuses to recognize, is popular with many Palestinians and has kept the movement competitive with the secular Fatah movement of Palestinian President Mahmoud Abbas, who remains in the West Bank after losing Gaza to Hamas in a civil war five years ago.

"Hamas and the others, they're our sons and our brothers, we're fingers on the same hand," said 55-year-old Faraj al-Sawafir, whose home was blasted by Israeli forces. "They fight for us and are martyred, they take losses and we sacrifice too."

Along Israel's sandy, fenced-off border with the Gaza Strip, tanks, artillery and infantry massed in field encampments awaiting any orders to go in. Some 45,000 reserve troops have been called up since the offensive was launched.

Israel's shekel rose on Tuesday for a second straight session while Tel Aviv shares gained for a third day in a row on what dealers attributed to investor expectations that a ceasefire deal was imminent.

(Additional reporting by Marwa Awad in Cairo, Writing by Jeffrey Heller; Editing by Giles Elgood)

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Congo rebels seize eastern city as U.N. forces look on

GOMA, Democratic Republic of Congo (Reuters) - Rebels widely believed to be backed by Rwanda seized Goma in eastern Democratic Republic of Congo on Tuesday, parading past U.N. peacekeepers who gave up the battle for the frontier city of one million people.

Fighters from the M23 group entered Goma after days of clashes with U.N.-backed Congolese soldiers that forced tens of thousands of residents to flee, raising fears of human rights abuses in the sprawling lakeside city.

A senior U.N. source told Reuters that international peacekeepers gave up defending Goma after the Congolese troops evacuated under pressure from the advancing rebels.

"There is no army left in the town, not a soul... Once they were in the town what could we do? It could have been very serious for the population," he said asking not to be named.

The M23 rebellion has aggravated tensions between Congo and its neighbor Rwanda, which Kinshasa's government says is orchestrating the insurgency as a means of grabbing the chaotic region's mineral wealth. Rwanda denies the assertion.

"We will continue (resisting) until Rwanda has been pushed out of our country ... There will be absolutely no negotiations with M23," Congolese Information Minister Lambert Mende said, adding that Kinshasa would talk directly only with Rwanda.

U.N. experts say Rwanda, a small but militarily capable neighbor that has intervened in Congo repeatedly over the past 18 years, is behind the revolt. Congo's mineral wealth, including diamonds, gold, copper and coltan - used in mobile phones - has inflamed the conflict and little has been spent on developing a country the size of Western Europe.

The capture of Goma will also be an embarrassment for President Joseph Kabila, who won re-election late last year in polls that provoked widespread riots and which international observers said were marred by fraud.

Congolese state television reported on Tuesday that Kabila, who has made few public comments on the rebellion in recent weeks, is travelling to Uganda, the mediator in the conflict with the eastern rebels.

Uganda's Junior Foreign Affairs Minister Asuman Kiyingi told Reuters the rebels would not attend the talks.

In the Congolese capital Kinshasa, security forces used tear gas and fired shots in the air to disperse a few hundred youths protesting about the fall of Goma. Residents in Congo's second city, Kisangani, attacked Kabila's local party headquarters.

While conflict has simmered almost constantly in Congo's east in recent years, this is the first time Goma has fallen to rebels since foreign troops officially pulled out under peace deals at the end of the most recent 1998-2003 war.

VICTORY PARADE

Hundreds of M23 fighters accompanied their leader Sultani Makenga into Goma, where they were greeted by cheering crowds shouting "welcome" and "thank you". Before they arrived intoxicated local people had thrown up roadblocks of stones in the largely deserted streets pelted by heavy rain.

"We've taken the town, it's under control," said Colonel Vianney Kazarama, a spokesman for the rebels. "We're very tired, we're going to greet our friends now." On Monday, Kazarama had denied the rebels would take the city.

Analysts said it was unclear if M23 would try to make Goma a stepping stone towards Kinshasa, as past rebellions have done, or would use the victory to push the government into talks.

"By making this demand (for talks), the M23 aimed to reduce the crisis to a domestic affair, thereby preventing Kinshasa from internationalizing it in order to negotiate a solution at the regional level...," conflict think tank International Crisis Group said in a note.

Goma's fall risked triggering "serious human rights abuses against civilian populations" and had the potential to "relaunch open warfare between the (Democratic Republic of Congo) and Rwanda".

Before M23 took the city, streams of residents headed for the nearby border with Rwanda. More than 50,000 people who fled earlier fighting abandoned refugee camps around Goma, according to Oxfam.

"With the war, we're suffering so much, I've never seen anything like this in my life," a woman who gave her name only as Aisha told Reuters, clutching her three children.

While M23 has been accused of abuses in areas it controls, it has also set up an administration that tries to provide basic services such as health care, police training and rubbish removal, residents have told Reuters.

M23 is led by mutinying soldiers who rose up eight months ago, contending that Congo's government violated a 2009 peace deal that was meant to integrate them into the army. Many, however, believe they have since become a front for Rwanda.

Congo analyst Jason Stearns said Rwanda would draw international criticism for the fall of Goma, the capital of Congo's North Kivu province, but also regain influence. Donor nations, some of which had frozen aid to Kigali over its alleged backing for the rebellion, would be forced to accept its role in any negotiated settlement with Kinshasa.

"Donors, and probably the Congolese government, will have no choice but to deal with the rebels and call on Rwanda to help," he said.

Rwanda accused Congolese troops on Monday of shelling the Rwandan border town of Gisenyi, injuring three people, but it added it would not respond militarily to what it called Congo's "provocation".

Rwandan Foreign Minister Louise Mushikiwabo said Goma's fall showed there was no military solution and called for talks.

KIGALI'S ROLE

The U.N. has about 6,700 peacekeeping troops in North Kivu, including some 1,400 troops in and around Goma, and the mission had previously promised to defend the town, using attack helicopters to strike rebel advances.

On Tuesday afternoon armored U.N. vehicles still circulated in the streets of Goma, offering help to residents, but troops did not try to block the rebels. No government soldiers were to be seen, with residents saying they left along the main road west toward Bukavu after the rebels began infiltrating.

Wars in the central African nation have killed about 5 million people and many eastern areas are still afflicted by violence from a number of rebel groups, despite the decade-long peacekeeping mission.

Uganda has blamed the escalation of fighting on a leaked U.N. report that accused it and Rwanda of supporting Congolese rebels, a document Kampala said damaged its mediation efforts.

Kampala has vigorously denied the U.N. charges, which emerged in October, and Kiyingi said they had undermined Kampala's mediating role.

"Uganda was mediating in this conflict ... and we had managed to restrain M23," he said. "Then the U.N. comes up with these wild and baseless allegations against us and we decided to step aside and leave the situation to them and now you see the results."

Uganda has threatened to pull its troops out of peacekeeping operations in Somalia unless the U.N. allegations are withdrawn.

(Additional reporting by Elias Biryabarema in Kampala; John Irish in Paris; Richard Lough in Nairobi; Bienvenu Bakumanya in Kinshasa; Richard Valdmanis, David Lewis, and Bate Felix in Dakar; Writing by Richard Valdmanis; Editing by David Lewis and David Stamp)

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Afghan Haqqani faction would consider talks under Taliban

PESHAWAR, Pakistan (Reuters) - The Haqqani network, seen as the most lethal insurgent faction in Afghanistan, would take part in peace talks with the United States but only under the direction of their Afghan Taliban leaders, a top faction commander said on Tuesday.

The rare flexibility exhibited by an Afghan militant commander was accompanied by a warning that the Haqqanis would keep up pressure on Western forces with high-profile attacks and would pursue their goal of establishing an Islamic state.

The Haqqanis, who operate out of the unruly border area between Pakistan and Afghanistan, say they are part of the Afghan Taliban and must act in unison in any peace process.

The commander, who declined to be identified, accused the United States of being insincere in peace efforts and trying to divide the two organizations.

"However, if the central shura, headed by Taliban supreme leader Mullah Mohammad Omar, decided to hold talks with the United States, we would welcome it," he told Reuters by telephone from an undisclosed, referring to the militants' leadership council.

The Taliban said in March they were suspending nascent peace talks with the United States.

A senior Afghan official closely involved with reconciliation efforts said last week the government had failed to secure direct talks with the Taliban and no significant progress was expected before 2014.

The United States designated the Haqqani network a terrorist organization in September, a move its commanders said proved Washington was not sincere about peace efforts in Afghanistan.

Last week, the United Nations Security Council imposed sanctions on the Haqqanis.

Isolating the group, who were blamed for the 18-hour attack on embassies and parliament in Kabul in April, could complicate efforts to secure peace at a time when Afghans fear another civil war could erupt after Western forces withdraw.

"CLOSE TO VICTORY"

The Haqqani network may prove to be President Barack Obama's biggest security challenge as he tries to stabilize Afghanistan before most NATO combat troops withdraw from Afghanistan in 2014.

The group's experience in guerrilla fighting dating back to the anti-Soviet war in the 1980s and its substantial financial network, could make it the ultimate spoiler of peace efforts.

A report in July by the Center for Combating Terrorism said the Haqqanis ran a sophisticated financial network, raising money through kidnapping, extortion and drug trafficking but also have a legitimate business portfolio that includes import/export, transport, real estate and construction interests in Afghanistan, Pakistan and the Gulf.

The commander said the Haqqani network was pleased about Obama's re-election, predicting he would be demoralized by battlefield losses and pull out U.S. forces earlier than expected.

"From what we see on the ground, Obama would not wait for 2014 to call back his forces," said the commander.

"They suffered heavy human and financial losses and are not in a position to suffer more."

The commander said he and his men were looking ahead to victory.

"We will install a purely a Islamic government, which would be acceptable to all the people," he said.

"We are present everywhere in Afghanistan now and can carry out attacks when and wherever we want. We are very close to our victory."

(Writing by Michael Georgy; Editing by Robert Birsel)

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