Five die in Egypt violence on anniversary of uprising

CAIRO/ISMAILIA, Egypt (Reuters) - Five people were shot dead in the Egyptian city of Suez during nationwide protests against President Mohamed Mursi on Friday, the second anniversary of the uprising that toppled Hosni Mubarak.

One of the dead was a member of the security forces, medics said. Another 280 civilians and 55 security personnel were injured, officials said, in demonstrations fuelled by anger at the president and his Islamist allies in the Muslim Brotherhood.

Thousands of opponents of Mursi massed in Cairo's Tahrir Square - the cradle of the revolt against Mubarak - to rekindle the demands of a revolution they say has been hijacked by Islamists who have betrayed its goals.

Street battles erupted in Cairo, Alexandria, Suez and Port Said. Arsonists attacked at least two state-owned buildings as symbols of government were targeted. An office used by the Muslim Brotherhood's political party was also torched.

The January 25 anniversary laid bare the divide between the Islamists and their secular rivals.

This schism is hindering the efforts of Mursi, elected in June, to revive an economy in crisis and reverse a plunge in Egypt's currency by enticing back investors and tourists.

Inspired by the popular uprising in Tunisia, Egypt's revolution spurred further revolts across the Arab world. But the sense of common purpose that united Egyptians two years ago has given way to internal strife that had already triggered bloody street battles last month.

"Our revolution is continuing. We reject the domination of any party over this state. We say no to the Brotherhood state," Hamdeen Sabahy, a popular leftist leader, told Reuters.

The Brotherhood decided against mobilizing for the anniversary, wary of the scope for more conflict after December's violence, stoked by Mursi's decision to fast-track an Islamist-tinged constitution rejected by his opponents.

The Brotherhood denies accusations that it is seeking to dominate Egypt, labeling them a smear campaign by its rivals.

DEATH IN SUEZ

There were conflicting accounts of the lethal shooting in Suez. Some witnesses said security forces had opened fire in response to gunfire from masked men.

News of the deaths capped a day of violence which started in the early hours. Before dawn in Cairo, police battled protesters who threw petrol bombs and firecrackers as they approached a wall blocking access to government buildings near Tahrir Square.

Clouds of tear gas filled the air. At one point, riot police used one of the incendiaries thrown at them to set ablaze at least two tents erected by youths, a Reuters witness said.

Skirmishes between stone-throwing youths and the police continued in streets around the square into the day. Ambulances ferried away a steady stream of casualties.

Protesters echoed the chants of 2011's historic 18-day uprising. "The people want to bring down the regime," they chanted. "Leave! Leave! Leave!" chanted others as they marched towards the square.

"We are not here to celebrate but to force those in power to submit to the will of the people. Egypt now must never be like Egypt during Mubarak's rule," said Mohamed Fahmy, an activist.

There were similar scenes in Suez and Alexandria, where protesters and riot police clashed near local government offices. Black smoke billowed from tires set ablaze by youths.

In Cairo, police fired tear gas to disperse a few dozen protesters trying to remove barbed-wire barriers protecting the presidential palace, witnesses said. A few masked men got as far as the gates before they were beaten back.

Tear gas was also fired at protesters who tried to remove metal barriers outside the state television building.

Outside Cairo, protesters broke into the offices of provincial governors in Ismailia and Kafr el-Sheikh in the Nile Delta. A local government building was torched in the Nile Delta city of al-Mahalla al-Kubra.

BADIE CALLS FOR "PRACTICAL, SERIOUS COMPETITION"

With an eye on parliamentary elections likely to begin in April, the Brotherhood marked the anniversary with a charity drive across the nation. It plans to deliver medical aid to one million people and distribute affordable basic foodstuffs.

Writing in Al-Ahram, Egypt's flagship state-run daily, Brotherhood leader Mohamed Badie said the country was in need of "practical, serious competition" to reform the corrupt state left by the Mubarak era.

"The differences of opinion and vision that Egypt is passing through is a characteristic at the core of transitions from dictatorship to democracy, and clearly expresses the variety of Egyptian culture," he wrote.

Mursi's opponents say he and his group are seeking to dominate the post-Mubarak order. They accuse him of showing some of the autocratic impulses of the deposed leader by, for example, driving through the new constitution last month.

"I am taking part in today's marches to reject the warped constitution, the 'Brotherhoodisation' of the state, the attack on the rule of law, and the disregard of the president and his government for the demands for social justice," Amr Hamzawy, a prominent liberal politician, wrote on his Twitter feed.

The Brotherhood says its rivals are failing to respect the rules of the new democracy that put the Islamists in the driving seat via free elections.

Six months into office, Mursi is also being held responsible for an economic crisis caused by two years of turmoil. The Egyptian pound has sunk to record lows against the dollar.

The parties that called for Friday's protests list demands including a complete overhaul of the constitution.

Critics say the constitution, which was approved in a referendum, offers inadequate protection for human rights, grants the president too many privileges and fails to curb the power of a military establishment supreme in the Mubarak era.

Mursi's supporters say enacting the constitution quickly was crucial to restoring stability needed for economic recovery.

(Additional reporting by Ahmed el-Shemi, Ashraf Fahim, Marwa Awad, Shaimaa Fayed and Yasmine Saleh in Cairo and Abdel Rahman Youssef in Alexandria; Writing by Tom Perry; Editing by Robert Woodward)

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

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

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

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

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

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

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

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

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

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

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

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

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

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

U.S. URGES NO TEST

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

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

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

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

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

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

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

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

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

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

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

The older Kim died in December 2011.

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

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

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Cameron promises Britons vote on EU exit

LONDON (Reuters) - Prime Minister David Cameron promised Britons a vote on quitting the European Union, rattling London's biggest allies and some investors by raising the prospect of uncertainty and upheaval.

Cameron announced on Wednesday that the referendum would be held by the end of 2017 - provided he wins a second term - and said that while Britain did not want to retreat from the world, public disillusionment with the bloc was at "an all-time high".

"It is time for the British people to have their say. It is time for us to settle this question about Britain and Europe," Cameron said in a speech, adding that his Conservative party would campaign for the 2015 parliamentary election on a promise to renegotiate the terms of Britain's EU membership.

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

A referendum would mark the second time British voters have had a direct say on the issue. In 1975, they decided by a wide margin to stay in, two years after the country had joined.

Most recent opinion polls have shown a slim majority would vote to leave amid bitter disenchantment, fanned by a hostile press, about the EU's perceived influence on the British way of life. However, a poll this week showed a majority for staying.

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

He also avoided saying exactly what he would do if he failed to win concessions in Europe, as many believe is likely.

Critics, notably among business leaders worried about the effect on investment, say that for years before a vote, Britain may slip into a dangerous and damaging limbo that could leave it adrift or effectively pushed out of the EU.

The United States, a close ally, is also uneasy about the plan, believing it will dilute Britain's international clout. President Barack Obama told Cameron last week that Washington valued "a strong UK in a strong European Union" and the White House said on Wednesday it believed Britain's membership of the EU was mutually beneficial.

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

FRENCH "NON"

French Foreign Minister Laurent Fabius was less diplomatic: "If Britain wants to leave Europe, we will roll out the red carpet," he quipped, echoing words Cameron used recently to urge France's rich to escape high taxes and move to Britain.

French President Francois Hollande repeated his refusal of special deals: "What I will say, speaking for France, and as a European, is that it isn't possible to bargain over Europe to hold this referendum," he said. "Europe must be taken as it is.

"One can have it modified in future but one cannot propose reducing or diminishing it as a condition of staying in."

Italian Prime Minister Mario Monti was more positive. He said he agreed with Cameron on the need to make the EU more innovative and welcomed the idea of a British referendum, saying he thought Britons would ultimately vote to stay in the bloc.

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

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

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

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

"BREXIT"?

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

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

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

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

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

"This isn't good news. You added another reason why people will postpone investment decisions."

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

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

Euroskeptics in Cameron's party, who have threatened to stir up trouble for the premier, were thrilled by the speech.

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

Whether Cameron holds the referendum remains as uncertain as the Conservatives' chances of winning the election. They trail the opposition Labour party in opinion polls, and the coalition is grappling with a stagnating economy as it pushes through unpopular public spending cuts to reduce a large budget deficit.

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

EU REFORM

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

It was riskier to maintain the status quo than to change, he said: "The biggest danger to the European Union comes not from those who advocate change, but from those who denounce new thinking as heresy," he said.

Asked whether, if he did not succeed in his renegotiation strategy, would recommend a vote to take Britain out, he said only: "I want to see a strong Britain in a reformed Europe.

"We have a very clear plan. We want to reset the relationship. We will hold that referendum. We will recommend that resettlement to the British people."

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

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

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

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

Paul Chipperfield, a 53-year-old management consultant, said he liked the strategy: "Cameron's making the right move because I don't think we've had enough debate in this country," he said.

"We should be part of the EU but the EU needs to recognize that not everybody's going to jump on the same bandwagon."

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

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

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

(Additional reporting by Paul Taylor in Davos, Alexandra Hudson in Berlin, Brenda Goh in London, Jeff Mason in Washington and James Mackenzie in Rome; Editing by Guy Faulconbridge, David Stamp and Alastair Macdonald)

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Netanyahu claims election win despite losses

JERUSALEM (Reuters) - Hawkish Prime Minister Benjamin Netanyahu emerged the bruised winner of Israel's election on Tuesday, claiming victory despite unexpected losses to resurgent center-left challengers.

Exit polls showed the Israeli leader's Likud party, yoked with the ultra-nationalist Yisrael Beitenu group, would still be the biggest bloc in the 120-member assembly with 31 seats, 11 fewer than the 42 they held in the previous parliament.

If the exit polls compiled by three local broadcasters prove correct - and they normally do in Israel - Netanyahu would be on course for a third term in office, perhaps leading a hardline coalition that would promote Jewish settlement on occupied land.

But his weakened showing in an election he himself called earlier than necessary could complicate the struggle to forge an alliance with a stable majority in parliament.

The 63-year-old Israeli leader promised during his election campaign to focus on tackling Iran's nuclear ambitions if he won, shunting Palestinian peacemaking well down the agenda despite Western concern to keep the quest for a solution alive.

The projections showed right-wing parties with a combined strength of 61-62 seats against 58-59 for the center-left.

"According to the exit poll results, it is clear that Israel's citizens have decided that they want me to continue in the job of prime minister of Israel and to form as broad a government as possible," Netanyahu wrote on his Facebook page.

The centrist Yesh Atid (There is a Future) party, led by former television talk show host Yair Lapid, came second with 18 or 19 seats, exit polls showed - a stunning result for a newcomer to politics in a field of 32 contending parties.

Lapid won support amongst middle-class, secular voters by promising to resolve a growing housing shortage, abolish military draft exemptions for Jewish seminary students and seek an overhaul of the failing education system.

The once dominant Labour party led by Shelly Yachimovich was projected to take third place with 17 seats.

"YESH ATID SWEEP"

The mood was subdued at Netanyahu's Likud party election headquarters after the polls closed, with only a few hundred supporters in a venue that could house thousands.

"We anticipated we would lose some votes to Lapid, but not to this extent. This was a Yesh Atid sweep," Likud campaign adviser Ronen Moshe told Reuters.

A prominent Likud lawmaker, Danny Danon, told CNN: "We will reach out to everybody who is willing to join our government, mainly the center party of Yair Lapid."

If the prime minister can tempt Lapid to join a coalition, the ultra-Orthodox religious parties who often hold the balance of power in parliament might lose some of their leverage.

After a lackluster campaign, Israelis voted in droves on a sunny winter day, registering a turnout of 66.6 percent, the highest since 1999 when Netanyahu, serving his first term as premier, was defeated by then-Labour Party leader Ehud Barak.

The strong turnout buoyed center-left parties which had pinned their hopes on energizing an army of undecided voters against Netanyahu and his nationalist-religious allies.

Opinion polls before the election had predicted an easy win for Netanyahu, although the last ones suggested he would lose some votes to the Jewish Home party, which opposes a Palestinian state and advocates annexing chunks of the occupied West Bank.

The exit polls projected 12 seats for Jewish Home.

Full election results are due by Wednesday morning and official ones will be announced on January 30. After that, President Shimon Peres is likely to ask Netanyahu, as leader of the biggest bloc in parliament, to try to form a government.

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

But Netanyahu might, as Danon suggested, try to include more moderate parties to assuage Western concerns about Israel's increasingly hardline approach to the Palestinians.

WESTERN ANXIETY

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

U.S.-brokered peace talks broke down in 2010 amid mutual acrimony. Since then Israel has accelerated construction in the West Bank and east Jerusalem - land the Palestinians want for their future state - much to the anger of Western partners.

Netanyahu's relations with U.S. President Barack Obama have been notably tense and Martin Indyk, a former U.S. ambassador to Israel, told the BBC the election was unlikely to change that.

"President Obama doesn't have high expectations that there's going to be a government in Israel committed to making peace and is capable of the kind of very difficult and painful concessions that would be needed to achieve a two-state solution," he said.

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

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

He views Iran's nuclear program as a mortal threat to the Jewish state and has vowed not to let Tehran enrich enough uranium to make a single nuclear bomb - a threshold Israeli experts say could arrive as early as mid-2013.

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

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

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

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

(Reporting by Jerusalem bureau; Editing by Alastair Macdonald)

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Algeria says 37 foreigners died in siege led by Canadian

ALGIERS (Reuters) - A total of 37 foreigners and an Algerian died at a desert gas plant and five are still missing after a four-day hostage-taking coordinated by a Canadian gunman, Algerian Prime Minister Abdelmalek Sellal said on Monday.

Sellal also told a news conference that 29 Islamists had been killed in the siege, which Algerian forces ended by storming the plant on Saturday, and three were taken alive. Most of the gunmen were from various states of north and west Africa.

With some bodies burned beyond recognition and Algerian forces still combing the sprawling site, some details were still unclear or at odds with figures from other governments.

The siege has shaken confidence in the security of Algeria's vital energy industry and drawn attention to Islamist militancy across the Sahara, where France has sent troops to neighboring Mali to fight rebels who have obtained weaponry from Libya.

Of the 38 dead captives, out of a total workforce of some 800 at the In Amenas gas facility, seven were still unidentified but assumed to be foreigners, Algerian premier Sellal said.

Citizens of nine countries died, he said, among them seven Japanese, six Filipinos, two Romanians, an American, a Frenchman and four Britons. Britain said three Britons were dead and three plus a London-based Colombian were missing and believed dead.

Norway said the fate of five of its citizens was unclear; in addition to seven Japanese dead, Tokyo said three were missing.

An Algerian security source had earlier told Reuters that documents found on the bodies of two militants had identified them as Canadians: "A Canadian was among the militants. He was coordinating the attack," Sellal said, adding that the raiders had threatened to blow up the gas installation.

That Canadian's name was given only as Chedad. Algerian officials have also named other militants in recent days as having leadership roles among the attackers. Veteran Islamist Mokhtar Belmokhtar claimed responsibility on behalf of al Qaeda.

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

The jihadists had planned the attack two months ago in neighboring Mali, Sellal added. During the siege, from which he said they had hoped to take foreign hostages to Mali, the kidnappers had demanded France end its military operation.

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

He said special forces and army units were deployed against the militants, who had planted explosives in the gas plant with a view to blowing up the facility. Normally producing 10 percent of Algeria's natural gas, it was shut down during the incident.

The government now aims to reopen it this week.

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

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

LIBYAN NUMBER PLATES

Sellal said the jihadists who staged the attack last Wednesday had crossed into the country from neighboring Libya, after arriving there from Islamist-held northern Mali via Niger.

An Algerian newspaper said they had arrived in cars painted in the colors of state energy company Sonatrach but registered in Libya, a country awash with arms since Western powers backed a revolt to bring down Muammar Gaddafi in 2011.

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

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

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

ONE-EYED JIHADIST

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

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

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

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

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

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

BLOODY SIEGE

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

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

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

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

"This would have been a most demanding task for security forces anywhere in the world and we should acknowledge the resolve shown by the Algerians in undertaking it," British Prime Minister David Cameron told parliament on Monday.

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

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

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

In a reference to Western concerns that the Sahara and the dry grasslands of the Sahel to its south may become a haven for its Islamist enemies as Afghanistan was under the Taliban before 2001, Sellal said Algeria would not become "Sahelistan".

Cameron said Islamist threats to Britain from Afghanistan and Pakistan had diminished, compared with four years ago: "But at the same time," he said, "Al Qaeda franchises have grown in Yemen, Somalia and parts of North Africa."

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

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Veteran jihadist claims bloody Algeria siege for al Qaeda

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

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

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

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

"We are ready to negotiate with the West and the Algerian government provided they stop their bombing of Mali's Muslims," said Belmokhtar, a veteran of two decades of war in Afghanistan and the Sahara.

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

European and U.S. officials say the raid was almost certainly too elaborate to have been planned since the start of the French campaign, although the military action by Paris could have provided a trigger for an assault prepared in advance.

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

Some Western governments have expressed frustration at not being informed in advance of the Algerian authorities' decision to storm the complex on Thursday.

Survivors have said many hostages were killed when Algerian government forces blasted a convoy of trucks on Thursday morning. Algerian officials said they stormed the compound because the militants were trying to escape with their captives.

Britain and France both defended the Algerian action.

"It's easy to say that this or that should have been done. The Algerian authorities took a decision and the toll is very high but I am a bit bothered ... when the impression is given that the Algerians are open to question. They had to deal with terrorists," French Foreign Minister Laurent Fabius said.

British Prime Minister David Cameron said in a televised statement: "Of course people will ask questions about the Algerian response to these events, but I would just say that the responsibility for these deaths lies squarely with the terrorists who launched this vicious and cowardly attack.

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

With so much still unknown about the fates of foreigners held at the site, some countries that have faced casualties have yet to issue full counts of their dead.

Scores of foreigners lived alongside the hundreds of Algerians at the plant, which was run by Britain's BP and Norway's Statoil and also housed workers from a Japanese engineering firm and a French catering company.

Cameron said three British nationals were confirmed killed and another three plus a British resident were also feared dead. One American has been confirmed killed. Statoil said it was searching for five missing Norwegians. Japanese and French citizens are also among those missing or presumed dead.

Algeria's Interior Ministry, which gave the figure on Saturday of 23 hostages killed, said 107 foreign hostages and 685 Algerians had been freed.

"I am afraid unfortunately to say that the death toll will go up," Minister of Communication Mohamed Said was quoted as saying on Sunday by the official APS news agency. Private Algerian television station Ennahar said on Sunday 25 bodies had been discovered. Clearing the base would take 48 hours, it said.

Survivors have given harrowing accounts. Alan Wright, now safe at home in Scotland, told Sky News he had escaped with a group of Algerian and foreign workers who hid for a day and a night and then cut their way through a fence to run to freedom.

While hiding inside the compound the first night, he managed briefly to call his wife who was at home with their two daughters desperately waiting for news.

"She asked if I wanted to speak to Imogen and Esme, and I couldn't because I thought, I don't want my last ever words to be in a crackly satellite phone, telling a lie, saying you're OK when you're far from OK," he recalled.

Algeria's oil minister, Youcef Yousfi, visited the site and said the physical damage was minor, state news service APS reported. The plant, which produces 10 percent of Algeria's natural gas, would start back up in two days, he said.

OIL VULNERABILITIES EXPOSED

The Islamists' assault has tested Algeria's relations with the outside world and exposed the vulnerability of multinational oil operations in the Sahara.

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

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

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

French troops in Mali advanced slowly on Sunday towards the town of Diably, a militant stronghold the fighters abandoned on Saturday after punishing French attacks.

According to Communications Minister Said, the militants were of six different nationalities. Believed to be among the dead was their leader, Abdul Rahman al-Nigeri, a fighter from Niger who is seen as close to Belmokhtar.

The apparent ease with which guerrillas swooped in from the desert to take control of an important energy facility has raised questions over the country's outwardly tough security measures. Yousfi said Algeria would not allow foreign security firms to guard its oil facilities.

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

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

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

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

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Algerian army stages "final assault" on gas plant

ALGIERS/IN AMENAS, Algeria (Reuters) - The Algerian army carried out a dramatic final assault to end a siege by Islamist militants at a desert gas plant on Saturday in which 23 hostages were killed, many of them believed to be foreigners, the interior ministry said.

Thirty-two al Qaeda-linked militants were killed in the army operation to recapture the complex, according to a provisional toll from the ministry. A statement said 107 foreign hostages and 685 Algerian hostages had survived.

Militants seized the remote compound in the Sahara desert before dawn on Wednesday, taking a large number of hostages, including foreigner workers, and booby-trapped the compound with explosives.

The crisis marked a serious escalation of unrest in northwestern Africa, where French forces have been in Mali since last week fighting an Islamist takeover of Timbuktu and other towns.

The gas plant near the town of In Amenas was home to expatriate workers from Britain's BP, Norway's Statoil, Japanese engineering firm JGC Corp and others. One American and one British citizen have been confirmed dead.

British Prime Minister David Cameron said on Saturday he feared for the lives of five British citizens still unaccounted for. Statoil said five of its workers, all Norwegian nationals, were still missing. Japanese and American workers are also unaccounted for.

"We feel a deep and growing unease ... we fear that over the next few days we will receive bad news," Statoil Chief Executive Helge Lund said on Saturday. "People we have spoken to describe unbelievable, horrible experiences."

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

British Foreign Secretary William Hague confirmed that Algerian military operations at the plant had been concluded.

"We understand that the site is not yet fully safe because of hazards such as booby traps and so they are still working on that," Hague said.

Some Western governments expressed frustration at not being informed of the Algerian authorities' plans to storm the complex. Algeria's response to the raid will have been conditioned by the legacy of a civil war against insurgents in the 1990s which claimed 200,000 lives.

HOSTAGES FREED

As the army closed in, 16 foreign hostages were freed, a source close to the crisis said. They included two Americans and one Portuguese.

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

The captors said their attack on the Algerian gas plant was a response to the French offensive in Mali. However, officials say the elaborate raid would have been planned well before France launched its strikes.

Scores of Westerners and hundreds of Algerian workers were inside the heavily fortified gas compound when it was seized on Wednesday.

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

Before the interior ministry released its provisional death toll, an Algerian security source said eight Algerians and at least seven foreigners were among the victims, including two Japanese, two Britons and a French national. One British citizen was killed when the gunmen seized the hostages on Wednesday.

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

U.S. Defense Secretary Leon Panetta said nobody was going to attack the United States and get away with it.

"We have made a commitment that we're going to go after al Qaeda wherever they are and wherever they try to hide," he said during a visit to London. "We have done that obviously in Afghanistan, Pakistan, we've done it in Somalia, in Yemen and we will do it in North Africa as well."

BURNED BODIES

Earlier on Saturday, Algerian special forces found 15 unidentified burned bodies at the plant, a source told Reuters.

The field commander of the group that attacked the plant is a fighter from Niger called Abdul Rahman al-Nigeri, according to Mauritanian news agencies. His boss, Mokhtar Belmokhtar, a veteran of fighting in Afghanistan and Algeria's civil war of the 1990s, appears not to have joined the raid.

Britain, Japan and other countries have expressed irritation that the army assault was ordered without consultation and officials grumbled at the lack of information.

But French President Francois Hollande said the Algerian military's response seemed to have been the best option given that negotiation was not possible.

"When you have people taken hostage in such large number by terrorists with such cold determination and ready to kill those hostages - as they did - Algeria has an approach which to me, as I see it, is the most appropriate because there could be no negotiation," Hollande said.

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

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

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

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

France says the hostage incident proves its decision to fight Islamists in neighboring Mali was necessary. Al Qaeda-linked fighters, many with roots in Algeria and Libya, took control of northern Mali last year.

(Additional reporting by Balazs Koranyi in Oslo, Estelle Shirbon and David Alexander in London, Brian Love in Paris; Writing by Giles Elgood; Editing by Rosalind Russell)

(This story was refiled to correct Algerian hostages)

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Foreigners still caught in Sahara hostage crisis

ALGIERS/IN AMENAS, Algeria (Reuters) - More than 20 foreigners were still either being held hostage or missing inside a gas plant on Friday after Algerian forces stormed the desert complex to free hundreds of captives taken by Islamist militants.

More than a day after the Algerian army launched an assault to seize the remote desert compound, much was still unclear about the number and fate of the victims, leaving countries with citizens in harm's way struggling to find hard information.

Reports on the number of hostages killed ranged from 12 to 30, with anywhere from dozens to scores of foreigners still unaccounted for.

Norway's Prime Minister Jens Stoltenberg, eight of whose countrymen were missing, said fighters still controlled the gas treatment plant itself, while Algerian forces now held the nearby residential compound that housed hundreds of workers.

Leaders of Britain, Japan and other countries expressed frustration that the assault had been ordered without consultation. Many countries were also withholding information about their citizens to avoid helping the captors.

Night fell quietly on the village of In Amenas, the nearest settlement, some 50 km (30 miles) from the vast and remote desert plant. A military helicopter could be seen in the sky.

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

Algeria's state news agency APS put the total number of dead hostages at 12, including both foreigners and locals.

Norway's Stoltenberg said some of those killed in vehicles blasted by the army could not be identified. "We must be prepared for bad news this weekend but we still have hope."

Northern Irish engineer Stephen McFaul, who survived, said he saw four trucks full of hostages blown up by Algerian troops.

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

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

A local Algerian source said 100 of 132 foreign hostages had been freed from the facility. However, other estimates of the number of unaccounted-for foreigners were higher. Earlier the same source said 60 were still missing. Some may be held hostage; others may still be hiding in the sprawling compound.

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

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

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

The attackers had initially claimed to be holding 41 Western hostages. Some Westerners were able to evade capture by hiding.

They lived among hundreds of Algerian employees on the compound. The state news agency said the army had rescued 650 hostages in total, 573 of whom were Algerians.

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

MULTINATIONAL INSURGENCY

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

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

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

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

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

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

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

Al Qaeda-linked fighters, many with roots in Algeria and Libya, took control of northern Mali last year, prompting the French intervention in that poor African former colony.

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

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

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

Algerian officials said the attackers may have had inside help from among the hundreds of Algerians employed at the site. The attackers benefitted from bases and staging grounds across the nearby border in Libya's desert, Algerian officials said.

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

WARNING OF MORE ATTACKS

The kidnappers threatened more attacks and warned Algerians to stay away from foreign companies' installations, according to Mauritania's news agency ANI, which maintained contact with the group during the siege.

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

The overall commander of the kidnappers, Algerian officials said, was Mokhtar Belmokhtar, a one-eyed veteran of Afghanistan in the 1980s and Algeria's bloody civil war of the 1990s. He appears not to have been present.

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

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

U.S. officials had no clear information on the fate of Americans. Washington, like its European allies, has endorsed France's military intervention in Mali.

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

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Some foreign hostages said killed in Algeria assault

ALGIERS (Reuters) - Algeria said several hostages were killed on Thursday when its forces stormed a remote desert gas plant occupied by Islamist militants in retaliation for French intervention in Mali, and local sources said six foreigners were among the dead.

Amid reports of many more casualties in one of the biggest international hostage crises in decades, Western leaders expressed anger they had not been consulted before the operation and scrambled for word of their citizens. Some eight hours after the army assault began, Algerian state media said it was over.

Americans, Britons, Norwegians, French, Romanians and an Austrian, were among those taken, their countries said.

Algeria said its troops had been forced to act to free them due to the "diehard" attitude of their captors.

"When the terrorist group insisted on leaving the facility, taking the foreign hostages with them to neighboring states, the order was issued to special units to attack the position where the terrorists were entrenched," the government spokesman, Communication Minister, Mohamed Said told the state news agency.

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

Said said the military operation, which Western officials were told had begun around noon (6:00 a.m. EST) on Thursday, resulted in "the liberation of a large number of hostages and the destruction of a large number of terrorists".

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

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

He said 40 Algerians and three foreigners were freed by the army as it continued its operation into Thursday evening. An Algerian security source said earlier that 25 foreign hostages had escaped.

Algeria's official APS news agency said about half the foreign hostages had been freed and about 600 Algerian workers at the site, under less tight guard, had managed to escape.

MILITANTS KNEW THEIR WAY AROUND

In a rare eyewitness account of Wednesday's raid, a local man who had escaped from the facility told Reuters the militants appeared to have good inside knowledge of the layout of the complex and used the language of radical Islam.

"The terrorists told us at the very start that they would not hurt Muslims but were only interested in the Christians and infidels," Abdelkader, 53, said by telephone from his home in the nearby town of In Amenas. "We will kill them, they said."

Mauritanian agency ANI and Qatar-based Al Jazeera said that 34 of the captives and 15 of their captors had been killed when government forces fired from helicopters at a vehicle.

Those death tolls, far higher than confirmed by the local source, would contradict the reports that large numbers of foreigners escaped alive. On Thursday evening, ANI said it had lost its previously regular contact with the kidnappers.

Britain and Norway, whose oil firms BP and Statoil run the plant jointly with the Algerian state oil company, said they had been informed by the Algerian authorities that a military operation was under way.

British Prime Minister David Cameron said people should prepare for bad news about the hostages. He earlier called his Algerian counterpart to express his concern at what he called a "very grave and serious" situation, Cameron's spokesman said.

"The Algerians are aware that we would have preferred to have been consulted in advance," the spokesman added.

Norwegian Prime Minister Jens Stoltenberg said he had been told by his Algerian counterpart the action had started at around noon. He said they had tried to find a solution through the night, but that it had not worked.

"The Algerian prime minister said they felt they had no choice but to go in now," he said.

RAISING THE STAKES

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

"What is happening in Algeria justifies all the more the decision I made in the name of France to intervene in Mali in line with the U.N. charter," French President Francois Hollande said, adding that things seemed to have taken a "dramatic" turn and he was still seeking details.

He said earlier that an unspecified number of French nationals were among the hostages. A French national was also among the hostage takers, a local source told Reuters. A large number of people from the former French colony live in France.

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

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

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

NUMBERS UNCONFIRMED

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

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

The militants had said seven Americans were among their hostages. The White House said it believed Americans were among those held but U.S. officials could not confirm the number. "This is an ongoing situation and we are seeking clarity," White House spokesman Jay Carney told reporters, expressing concern about the reported loss of lives.

Statoil said it had no word on nine of its Norwegian staff who had been held but that three Algerian employees were now free. BP said some of its staff were held but would not say how many or their nationalities.

Japanese media said five workers from Japanese engineering firm JGC Corp. were held, a number the company did not confirm. Vienna said one hostage was Austrian, Dublin said one Irish hostage had been freed and Bucharest said an unspecified number of those held were Romanian.

BP, Statoil and Spanish oil company Cepsa all said they had begun to evacuate personnel from elsewhere in Algeria, an OPEC member.

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

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

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

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

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

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

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

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

(Additional reporting by Ali Abdelatti in Cairo, Gwladys Fouche in Oslo, Mohammed Abbas in London and Padraic Halpin in Writing by Peter Graff, Giles Elgood and Philippa Fletcher; Editing by Alastair Macdonald)

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Dozens held after Islamists attack Algerian gas field

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

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

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

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

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

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

"The Algerian authorities will not respond to the demands of the terrorists and will not negotiate," Interior Minister Daho Ould Kablia was quoted as saying by official news agency APS.

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

ARMED MEN

BP said armed men were still occupying facilities at the gas field, which produces 9 billion cubic meters of gas a year(160,000 barrels of oil equivalent per day), more than a tenth of the country's overall gas output, and 60,000 barrels a day of condensate.

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

A spokesman for BP said it usually had fewer than 20 people working at the site but would not be drawn on whether there were any talks with the hostage takers. He said: "Obviously we are doing everything we can to make sure our people are okay."

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

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

The U.S. State Department said it believed some U.S. citizens were also among the hostages, while Norwegian Prime Minister Jens Stoltenberg said 13 employees of Statoil, a minority shareholder in the gas venture, were being held.

A member of an Islamist group styling itself the "Blood Battalion" was quoted by Mauritanian media as saying that five of the hostages were being held at the gas facility and 36 were in a housing area. APS said the Islamist raiders had freed Algerians working at the gas facility, though Regis Arnoux, head of French company CIS Catering, told JDD weekly newspaper that 150 Algerian employees of his company were being held at the site.

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

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

Interior Minister Kablia also told APS that Belmokhtar was leading the group of about 20 individuals, whom he said were not from Mali, Libya or "any other neighboring state".

Belmokhtar, dubbed by French intelligence as "the uncatchable", for years commanded al Qaeda fighters in the Sahara before setting up his own armed Islamist group late last year after an apparent fallout with other militant leaders.

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

ANI reported that the Islamists said they were surrounded by Algerian forces and warned that any attempt to free the hostages would lead to a "tragic end". One of the hostage takers told ANI that the perimeter of the site had been mined.

SECURITY IMPLICATIONS

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

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

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

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

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

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

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

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

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

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France to stay in Mali until stability restored

BAMAKO/DUBAI (Reuters) - France pledged on Tuesday to keep troops in Mali until stability returned to the West African country, raising the specter of a long campaign against al Qaeda-linked rebels who held their ground despite a fifth day of air strikes.

Paris has poured hundreds of soldiers into Mali and carried out 50 bombing raids since Friday in the Islamist-controlled northern half of the country, which Western and regional states fear could become a base for terrorist attacks in Africa and Europe.

Defense Minister Jean-Yves Le Drian said that, despite French air support, Malian forces had not been able to dislodge Islamist fighters from the central Malian town of Konna or Diabaly, just 350 km (220 miles) northeast of Bamako.

A column of French armored vehicles rolled northward from the dusty riverside capital of Bamako towards rebel lines on Tuesday, the first major northward deployment of ground troops. A military official declined to comment on their objective.

Thousands of African soldiers are due to take over the offensive, but regional armies are scrambling to accelerate the operation, which was initially not expected for months and has been brought forward by France's surprise bombing campaign aimed at stopping a rebel advance on a strategic town last week.

President Francois Hollande, on a visit to the United Arab Emirates during which he sought Gulf states' financial backing for the African-led mission, suggested France would retain a major role in its former colony for months to come.

"We have one goal. To ensure that when we leave, when we end our intervention, Mali is safe, has legitimate authorities, an electoral process and there are no more terrorists threatening its territory," Hollande told a news conference.

Paris has said it plans to deploy 2,500 soldiers to bolster the Malian army and work with the intervention force provided by West African states.

West African defense chiefs met in Bamako on Tuesday to approve plans for speeding up the deployment of 3,300 regional troops, foreseen in a United Nations-backed intervention plan.

Nigeria pledged to deploy soldiers within 24 hours, and Belgium said it was sending transport planes and helicopters to help, but West Africa's armies need time to become operational.

Mali's north, a vast and inhospitable area of desert and rugged mountains the size of Texas, was seized last year by an Islamist alliance combining al Qaeda's north African wing AQIM with splinter group MUJWA and the home-grown Ansar Dine rebels.

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

The rebels, who French officials say are mobile and well armed, have shown they can hit back, dislodging government forces from Diabaly on Monday.

Residents said the town was still under Islamist control on Tuesday despite a number of air strikes that shook houses.

An eye witness near Segou, to the south, told Reuters he had seen 20 French Special Forces soldiers driving toward Diabaly.

In Konna, whose seizure on Thursday sparked French involvement, residents said Islamist fighters were camped just outside town. Army troops had also withdrawn after entering the town on Saturday.

Malians have largely welcomed the French intervention, having seen their army suffer a series of defeats by the rebels.

"With the arrival of the French, we have started to see the situation on the front evolve in our favor," said Aba Sanare, a resident of Bamako.

QUESTIONS OVER READINESS

Aboudou Toure Cheaka, a senior regional official in Bamako, said the West African troops would be on the ground in a week.

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

Senegal, Burkina Faso, Niger, Nigeria and Guinea have all offered troops. Col. Mohammed Yerima, spokesman for Nigeria's defense ministry, said the first 190 soldiers would be dispatched within 24 hours.

But Nigeria, which is due to lead the mission, has already cautioned that even if some troops arrive in Mali soon, their training and equipping will take more time.

Sub-Saharan Africa's top oil producer, which already has peacekeepers in Sudan's Darfur and is fighting a bloody and difficult insurgency at home against Islamist sect Boko Haram, could struggle to deliver on its troop commitment of 900 men.

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

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

FRENCH LINING UP SUPPORT

France, which has repeatedly said it has abandoned its role as policeman of its former African colonies, said on Monday that the U.S., Canada, Denmark and Germany had also offered logistical support.

Fabius has said Gulf Arab states would help the Mali campaign, while Belgium said on Tuesday it would send two C130 transport planes and two medical helicopters following a request from Paris.

A meeting of donors for the operation was expected to be held in Addis Ababa at the end of January.

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

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

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

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

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

"We have made a commitment that al Qaeda is not going to find any place to hide," U.S. Defense Secretary Leon Panetta told reporters as he began a visit to Europe. Panetta later said the U.S. had no plans to send troops to Mali.

One U.S. military source said the haphazard nature of French involvement reminded him of the U.S. entry into Afghanistan.

"I don't know what the French endgame is for this," the source said. "Air strikes are fine, but pretty soon you run out of easy targets. Then what do you do? What do you do when they head up into the mountains?"

(Additional reporting by Elizabeth Pineau and Raissa Kasolowsky in Abu Dhabi; Felix Onuah in Abuja and Tim Cocks in Lagos; Abdi Sheikh in Mogadishu; Michelle Nichols Louis Charbonneau at the United Nations; Richard Valdmanis in Dakar; Joe Bavier in Abidjan; Jan Vermeylen in Brussels; Writing by Pascal Fletcher, Daniel Flynn and David Lewis; editing by Richard Valdmanis, Giles Elgood and Will Waterman)

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Mali Islamists counter attack, promise France long war

BAMAKO/PARIS (Reuters) - Al Qaeda-linked Islamist rebels launched a counteroffensive in Mali on Monday after four days of French air strikes on their northern strongholds, seizing the central town of Diabaly and promising to drag France into a brutal Afghanistan-style war.

France, which has poured hundreds of troops into the capital Bamako in recent days, carried out more air strikes on Monday in the vast desert area seized last year by an Islamist alliance grouping al Qaeda's north African wing AQIM alongside Mali's home-grown MUJWA and Ansar Dine militant groups.

"France has opened the gates of hell for all the French," said Oumar Ould Hamaha, a spokesman for MUJWA, which has imposed strict sharia, Islamic law, in its northern fiefdom of Gao. "She has fallen into a trap which is much more dangerous than Iraq, Afghanistan or Somalia," he told Europe 1 radio.

Paris is determined to shatter Islamist domination of the north of its former colony, an area many fear could become a launchpad for terrorism attacks on the West and a base for coordination with al Qaeda in Yemen, Somalia and North Africa.

The French defense ministry said it aimed to deploy 2,500 soldiers in the West African state to bolster the Malian army and work with a force of 3,300 West African troops from the immediate region foreseen in a U.N.-backed intervention plan.

The United States, which has operated a counter-terrorism training program in the region, said it was sharing information with French forces and considering providing logistics, surveillance and airlift capability.

"We have a responsibility to go after al Qaeda wherever they are," Defense Secretary Leon Panetta told reporters heading with him on a week-long tour of European capitals.

As French aircraft bombarded mobile columns of Islamist fighters, other fighters launched a counter-attack to the southwest of recent clashes, dislodging government forces from the town of Diabaly, just 350 km (220 miles) northeast of Bamako. French and Malian troops attempting to retake the town were battling Islamists shouting 'Allahu akbar', residents said.

The rebels infiltrated the town overnight from the porous border region with Mauritania, home to AQIM camps housing well-equipped and trained foreign fighters. A spokesman for Ansar Dine said its fighters took Diabaly, working with AQIM members.

Dozens of Islamist fighters died on Sunday when French rockets hit a fuel depot and a customs house being used as a headquarters. The U.N. said an estimated 30,000 people had fled the fighting, joining more than 200,000 already displaced.

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

The European Union announced it would hold an extraordinary meeting of its foreign ministers in Brussels this week to discuss speeding up a EU training mission to help the Malian army and other direct support for the Bamako government.

French Foreign Minister Laurent Fabius said France would do everything to ensure that regional African troops were deployed quickly to follow up on the French military action, which was launched to block a push southwards by the Islamist rebels.

"ORGANISED AND FANATICAL"

"We knew that there would be a counter-attack in the west because that is where the most determined, the most organized and fanatical elements are," French Defense Minister Jean-Yves Le Drian told France's BFM TV.

France has said its sudden intervention on Friday, responding to an urgent appeal from Mali's president, stopped the Islamists from seizing the dusty capital of Bamako.

President Francois Hollande says Operation Serval - named after an African wildcat - is solely aimed at supporting the 15-nation West African bloc ECOWAS which received U.N. backing in December for a military intervention to dislodge the rebels.

Hollande's robust intervention has won plaudits from Western leaders and has also shot down domestic criticism which portrayed him as spineless and indecisive.

Under pressure from Paris, regional states have said they hope to send in their forces this week. Military chiefs from ECOWAS nations will meet in Bamako on Tuesday but regional powerhouse Nigeria, which is due to lead the mission, has cautioned that training and deploying troops will take time.

Two decades of peaceful elections had earned Mali a reputation as a bastion of democracy in turbulent West Africa but that image unraveled after a military coup in March left a power vacuum for MNLA Tuareg rebels to seize the desert north.

MUJWA, an AQIM splinter group drawing support from Arabs and other ethnic groups, took control of Gao, the main city of the north, from the Tuaregs in June, shocking Mali's liberal Muslim majority with amputation of hands for theft under sharia.

Malian Foreign Minister Tyeman Coulibaly said the situation had become "untenable" in the north. "Every day, we were hearing about feet and hands being cut off, girls being raped, cultural patrimony being looted," he told the French weekly Paris Match.

ISLAMISTS DESTROY TIMBUKTU SHRINES

Last week's drive toward Bamako appeared to have been led by Ansar Dine, founded by renegade Tuareg separatist commander Iyad ag Ghali in his northern fiefdom of Kidal.

The group has said that the famed shrines of ancient desert trading town Timbuktu - a UNESCO world heritage site - were un-Islamic and idolatrous. Much of the area's religious heritage has now been destroyed, sparking international outrage.

France's intervention raises the threat for eight French hostages held by al Qaeda allies in the Sahara and for 30,000 French expatriates living in neighboring, mostly Muslim states.

Concerned about reprisals at home, France has tightened security at public buildings and on public transport.

However, top anti-terrorist judge, Marc Trevidic, played down the imminence of the risk, telling French media: "They're not very organized right now ... It could be a counter attack later on after the defeat on the ground. It's often like that."

Military analysts warn that if French action was not followed up by a robust deployment of ECOWAS forces, with logistical and financial support from NATO, then the whole U.N.-mandated Mali mission was unlikely to succeed.

"The French action was an ad-hoc measure. It's going to be a mess for a while, it depends on how quickly everyone can come on board," said Hussein Solomon, a professor at the University of the Free State, South Africa.

(Additional reporting by Emmanuel Jarry, Brian Love and Catherine Bremer in Paris, Justyna Pawlak and Adrian Croft in Busssels and Louis Charbonneau in New York; writing by Daniel Flynn; editing by Pascal Fletcher)

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