Syrian rocket attack on Aleppo kills 20: activists

AMMAN (Reuters) - A Syrian army rocket attack on a rebel-held district in the city of Aleppo killed at least 20 people and another 25 were missing, opposition activists said on Tuesday.

The missile was identified from its remains as a Scud-type rocket that government forces have increasingly used in areas under opposition control in the province of Aleppo and in the province of Deir a-Zor to the east, they said.

"The rocket brought down three adjacent buildings in Jabal Badro district. The bodies are being dug up gradually. Some, including children, have died in hospitals," Mohammad Nour said by phone from Aleppo. He said testimony from survivors indicated that 25 people were still under the rubble.

Video footage showed dozens of people scouring the site for missing victims and inspecting the damage. A body was being pulled from under a collapsed concrete structure. At a nearby hospital, a baby said to have been dug out from under the wreckage was shown dying in the hands of doctors.

Abdeljabbar al-Akeidi, head of the rebel Aleppo Military Council in Syria's largest city and erstwhile commercial hub, was shown in video footage inspecting the scene.

Syrian opposition fighters have captured several army bases in Aleppo in the last two months, depriving the army of secure sites from which troops have been firing artillery at rebel-held districts of the city and surrounding rural areas.

Rocket salvoes over the last week have hit the towns of Tel Rifaat and Dar Izza in rural Aleppo, as well the eastern towns of Albu Kamal and Mou Hassan near the border with Iraq.

Abu Mujahed of the Sham News Network opposition group in Aleppo said that although rebels were present in Jabal Badro, the area on the city's eastern edge had little strategic value.

"Jabal Badro has been with the opposition for months and life was normal in the district. Shops were open and people were going to work," Abu Mujahed said. "Using a devastating weapon like a Scud aims to stir anger against the (rebel) Free Syrian Army and undermine its base of popular support."

Syria has been convulsed by an uprising and civil war for almost two years, with an estimated 70,000 people killed, and U.N. investigators say war crimes, including deliberate attacks on civilians, have been committed by both sides.

(Reporting by Khaled Yacoub Oweis, Amman newsroom; Editing by Mark Heinrich)

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Pakistani Shi'ites call off protests after Quetta bombing arrests

QUETTA, Pakistan (Reuters) - Pakistani Shi'ites agreed to bury those killed in the most recent sectarian bombing, ending four days of protests, after the government said on Tuesday it had arrested 170 suspects linked to the attack.

Saturday's bombing in the northwestern city of Quetta killed 85 people. In an echo of a protest last month after a similar attack left nearly 100 dead, grieving relatives refused to bury their kin in a powerful rebuke to a government they say has repeatedly failed to protect them.

On Tuesday, Shi'ite leaders called off the protest after Information Minister Qamar Zaman Kaira said four suspects had been killed and 170 people arrested within hours of the government announcing an operation against the militants.

"The operation will go on until all culprits are nabbed," Kaira said.

It was unclear how Pakistan's security forces were able to locate so many suspects in such a short period of time, or why they had not moved to do so before.

Pakistan has a poor record when it comes to prosecuting terrorism suspects. More than 60 percent of suspects brought before anti-terrorism courts in Punjab province were released in 2011, the most recent year for which data is available.

"All our demands have been met," said Shi'ite leader Amin Shaheedi. "The government has assured us that Quetta will be protected now and such incidents will not be repeated."

Interior Minister Rehman Malik said the government had also replaced the provincial police chief and offered to heavily fortify the Hazara Shi'ite enclave in Quetta. Those who come out risk being killed.

The Hazara are a distinctive ethnic group whose features and dialect make them easy targets for Sunni militants.

Protests in support of the Shi'ites in Quetta were also held in other cities across the country.

In the commercial hub of Karachi, protesters blocked the road to the airport. In the capital of Islamabad, protesters gathered outside the Supreme Court, where the powerful chief justice has opened hearings into the violence.

He is demanding reports from intelligence services on what they are doing to counter the threat from the Sunni sectarian group Lashkar-e-Jhangvi.

The LeJ claimed responsibility for both Saturday's bombing and one last month that claimed nearly 100 lives. Their campaign of bombings and assassinations of minority Shi'ites is a bid to destabilize nuclear-armed Pakistan and install a Sunni theocracy.

Sectarian attacks dramatically increased last year, killing more than 400 Shi'ites across Pakistan.

On Monday, a Shi'ite doctor famed for his charity work was shot dead along with his 11-year-old son as he took the boy to school in the eastern city of Lahore. Community leaders said it seemed to be a sectarian attack.

The violence has called into question whether the government can secure the country ahead of elections expected in May.

(Additional reporting by Mehreen Zahra-Malik, Writing By Katharine Houreld; Editing by Jeremy Laurence)

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Nigerian "terrorists" nab French tourists in Cameroon: Hollande

YAOUNDE/DAKAR (Reuters) - Islamist militants from neighboring Nigeria abducted a French family of seven, including four children, in northern Cameroon on Tuesday, French President Francois Hollande said.

The risk of attacks on French nationals and interests in Africa has risen since France sent forces into Mali last month to help oust Islamist rebels occupying the country's north.

"They (French family) have been taken by a terrorist group that we know and that is in Nigeria," Hollande told reporters during a visit to Greece.

Armed men on motorcycles intercepted the family in their car at 0700 GMT and forced them to drive to the nearby Nigerian border, an aide to the governor of the province told Reuters, and the four-wheel drive vehicle was later found abandoned.

Islamist radicals in northern Nigeria now pose the biggest threat to stability in Africa's top oil-producing state.

Western governments are concerned that Nigeria's Boko Haram Islamists may link up with groups elsewhere in a region with poorly secured borders, especially al Qaeda's North African wing AQIM given the conflict in nearby Mali.

The seven French nationals were abducted in Dabanga about 10 km (six miles) from the Nigerian border near the Waza national park, where they had spent the night in the extreme north of Cameroon, an area where Westerners often go for holidays.

The parents of the family, which included two boys and two girls, worked in a French firm based in Cameroon, Hollande said.

It was the first case of foreigners being seized in the mostly Muslim north of Cameroon, a former French colony.

"I see the hand of Boko Haram in that part of Cameroon. France is in Mali, and it will continue until its mission is completed," Hollande said.

France intervened in Mali last month when Islamist rebels, after hijacking a rebellion by ethnic Tuareg MNLA separatists to seize control of the north in the confusion following a military coup, pushed south towards the capital Bamako.

Eight French citizens are already being held in West Africa's Sahel region by al Qaeda-affiliated groups.

"It shows that the fight against terrorist groups is a necessity as they threaten all of Africa," French foreign minister Laurent Fabius told reporters.

Cameroon Information Minister Issa Tchiroma Bakary said he could not confirm the kidnapping report for now.

TRACES OF BOKO HARAM

Cameroon is a largely secular state where 70 percent of the population is Christian and about 24 percent moderate Muslim. Most Cameroon Muslims live in the three northern regions of the country. Until now, there have been no known links between Muslims in north Cameroon and Islamists in northern Nigeria.

Most kidnappings of Western nationals in the region have been committed by pirates operating off Cameroon's southern Bakassi peninsula and the Gulf of Guinea, though the French foreign ministry advises against all travel in the north.

Charles Gurdon, managing director of Menas Associates, a London-based risk analysis consultancy, said there had been growing concerns over a possible spillover from Nigeria into the north of Cameroon.

"Traces of ... Boko Haram had been discovered (in Cameroon), but the Cameroon government has been covertly trying to undermine the threat," he said.

On Sunday, seven foreigners were snatched from the compound of Lebanese construction company Setraco in northern Nigeria's Bauchi state, and al Qaeda-linked Ansaru took responsibility.

Northern Nigeria is increasingly afflicted by attacks and kidnappings by Islamist militants. Ansaru, which rose to prominence only in recent months, has also claimed the abduction in December of a French national who is still missing.

An Ansaru said the abductions were driven by "the atrocities done to the religion of Allah by the European countries in many places, such as Afghanistan and Mali."

Ansaru is thought to have loose ties to Boko Haram, which has killed hundreds during a three-year-long insurgency focused mostly on the security forces, religious targets and politicians, rather than foreigners.

(Additional reporting by John Irish and Diadie Ba in Dakar, Jean-Baptiste Vey in Athens, Vicky Buffery and Alexandria Sage in Paris; Writing by John Irish; Editing by Mark Heinrich)

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Pressure mounts on Israel over Palestinian prisoner fast

RAMALLAH, West Bank (Reuters) - Hundreds of Palestinian prisoners in Israeli jails declared a one-day fast on Tuesday in solidarity with four inmates whose hunger strike has fuelled anti-Israel protests in the occupied West Bank.

Samer al-Issawi, one of the four Palestinians who have been on hunger strike, has been refusing food, intermittently, for more than 200 days. His lawyer says his health has deteriorated.

Gaunt and wheelchair-bound, Issawi appeared on Tuesday before a Jerusalem civil court, which deferred releasing him for at least another month.

The prisoners' campaign for better conditions and against detention without trial has touched off violent protests over the past several weeks outside an Israeli military prison and in West Bank towns.

In the Gaza Strip, the Islamic Jihad group said a truce with Israel that ended eight days of fighting in November could unravel if any hunger striker died.

The Palestinian Prisoners Club, which looks after the welfare of inmates and their families, said 800 prisoners were taking part in the day-long fast.

Issawi was among 1,027 jailed Palestinians freed by Israel in 2011 in exchange for Gilad Shalit, a soldier who was abducted on the Gaza border by Hamas, the Islamist militant group that now rules the enclave.

Issawi and Ayman Sharawneh, who has also been on hunger strike, are among 14 Palestinians who have been re-arrested by Israel since being released in the Shalit trade.

Ofir Gendelman, a spokesman for Israeli Prime Minister Benjamin Netanyahu, wrote on Twitter that Issawi and Sharawneh were detained "because they violated the terms of the Shalit deal by returning to illegal activities which pose a threat".

INTERNATIONAL CONCERN

Palestinian negotiator Saeb Erekat said he had been in contact with Israel and urged it to release the men. He said Egypt, which helped mediate the Shalit prisoner swap and also negotiated an end to a Palestinian mass hunger strike in Israeli jails last year, was trying to end the new protest.

Israel has defused previous long-term hunger strikes among the some 4,700 Palestinians in its jails by agreeing to release individuals or deporting them to Gaza - a prospect rejected by the four prisoners, who hail from Jerusalem and the West Bank.

The Quartet of Middle East negotiators - the United States, Russia, the United Nations and European Union - have expressed concern at the hunger strike.

In a statement on Monday, France's Foreign Ministry urged Israel "to be sensitive to the risk of a tragic outcome and to take appropriate measures as a matter of urgency".

The statement said "administrative detention must remain an exceptional measure of limited duration and be carried out with due regard for fundamental safeguards".

Israel holds some Palestinians in "administrative detention" based on evidence presented in a closed military court. It says the practice pre-empts militant attacks against it while keeping its counter-intelligence sources and tactics secret.

There were some 178 administrative detainees in Israeli jails in January, down from just over 300 around the time of another Palestinian hunger strike campaign last spring, according to Palestinian rights group Addameer.

"The battle waged by me and by my heroic colleagues ... is everyone's battle, the battle of the Palestinian people against the occupation and its prisons," Issawi said in a message conveyed to the Palestinian Ministry of Prisoners last week.

(Additional reporting by Nidal al-Mughrabi in Gaza and Ali Sawafta in Ramallah; Editing by Alison Williams)

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Venezuela's Maduro would win vote if Chavez goes: poll

CARACAS (Reuters) - Venezuelan Vice President Nicolas Maduro would win a presidential vote should his boss Hugo Chavez's cancer force him out, according to the first survey this year on such a scenario in the South American OPEC nation.

Local pollster Hinterlaces gave Maduro 50 percent of potential votes, compared to 36 percent for opposition leader Henrique Capriles.

Chavez made a surprise return to Venezuela on Monday, more than two months after cancer surgery in Cuba, to continue treatment at home for the disease that is jeopardizing his 14-year socialist rule.

He has named Maduro, 50, a former bus driver and union activist, as his preferred successor.

Capriles, 40, a center-left state governor who lost to Chavez in a presidential vote last year, likely would run again.

Chavez still has not spoken in public since his December 11 operation in Cuba. Venezuelans were debating on Tuesday the various possible scenarios after his homecoming - from full recovery to resignation or even death from the cancer.

There was widespread expectation Chavez would soon be formally sworn in for his new six-year term at the Caracas military hospital where officials said he was staying. The January 10 ceremony was postponed while he was in Cuba.

"The president's timeline is strictly linked to his medical evolution and recovery," said Rodrigo Cabezas, a senior member of Chavez's ruling Socialist Party who, like other officials, would not comment on when he might be sworn in.

CAPRILES ANGRY

Should Chavez be forced out, Venezuela's constitution stipulates an election must be held within 30 days, giving Capriles and the opposition Democratic Unity coalition another chance to end the socialists' lengthy grip on power.

Capriles, who crossed swords with Hinterlaces at various points during the presidential election, again accused its director, Oscar Schemel, of bias in the latest survey.

"That man is not a pollster, he's on the government's payroll," Capriles told local TV.

"He said in December I would lose the Miranda governorship," he added, referring to his defeat of government heavyweight Elias Jaua, now foreign minister, in that local race.

Opinion surveys are notoriously controversial and divergent in Venezuela, with both sides routinely accusing pollsters of being in the pocket of the other. But Hinterlaces successfully forecast Chavez's win with 55 percent of the vote in October.

Its latest poll was of 1,230 people between January 30-February 9.

Polls last year showed Capriles - an energetic basketball-playing lawyer who admires Brazil's centrist mix of free-market economics with strong social welfare policies - as more popular than any of Chavez's senior allies.

But Chavez's personal blessing of Maduro, on the eve of his last cancer surgery, has transformed his status and made him the heir apparent for many of the president's supporters.

As de facto leader since mid-December, Maduro also has built up a stronger public profile, copying the president's techniques of endless live TV appearances, especially to inaugurate new public works or promote popular policies like subsidized food.

He lacks Chavez's charisma, however, and opponents have slammed him as a "poor imitation" and incompetent.

EMOTION

Local analyst Luis Vicente Leon said that should Chavez die, Maduro would benefit from the emotion unleashed among his millions of passionate supporters in Venezuela.

"The funeral wake for Chavez would merge into the election campaign," he told a local newspaper, noting how Argentine President Cristina Fernandez's popularity surged when her husband and predecessor Nestor Kirchner died in 2010.

Maduro already has implemented an unpopular devaluation of the local currency and said more economic measures are coming this week in what local economists view as austerity measures after blowout spending prior to last year's election.

In Caracas, the streets were quieter after tumultuous celebrations of Chavez's homecoming by supporters on Monday. A few journalists stood outside the military hospital.

Prayer vigils were planned in various parts of Venezuela.

"We hope Chavez will stay governing because he is a strong man," supporter Cristina Salcedo, 50, said in Caracas.

Student demonstrators who had chained themselves near the Cuban Embassy last week, demanding more information on Chavez's condition, called off their protest after his return.

Until photos were published of him on Friday, the president had not been seen by the public since his six-hour December 11 operation, the fourth since cancer was detected in mid-2011.

The government has said Chavez is breathing through a tracheal tube and struggling to speak.

Bolivian President Evo Morales arrived in Caracas on Tuesday in the hope of visiting his friend and fellow leftist.

(Additional reporting by Deisy Buitrago, Mario Naranjo, Girish Gupta in Caracas, Carlos Quiroga in La Paz; Editing by Bill Trott)

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Israel confirms Australian's suicide in judge's inquiry

JERUSALEM (Reuters) - Israel released details on Tuesday about the 2010 jailhouse suicide of an Australian immigrant reported to have been a disgraced Mossad spy, saying he hanged himself in his cell and no foul play was involved.

The affair was kept under wraps until it emerged last week with an Australian television expose that identified the dead man as 34-year-old Ben Zygier, a likely Israeli foreign intelligence recruit held for suspected security offences.

Without explicitly naming Zygier, Israel has confirmed that at the time it had a dual citizen in custody and under alias to stem serious harm to national interests, on which it would not elaborate. The December 15 date it gave for the detainee's death matched that etched on the Melbourne-born Jew's gravestone.

Easing a gag order, an Israeli court allowed the publication on Tuesday of the results of a judge's inquiry, completed two months ago, into the death.

The investigation showed the prisoner looped a wet sheet around his neck, tied it to the bars of a bathroom window in his cell and hanged himself, choking to death.

Israeli media reported the bathroom area was not covered, for privacy reasons, by closed-circuit television cameras that transmitted images from other parts of the isolation cell.

Ruling out foul play on the basis of medical and physical evidence, Judge Dafna Blatman-Kardai said entry to the cell was monitored by cameras and examination of their footage showed no one "intervened in causing the death of the deceased".

She said his family - which has not commented publicly on the case - agreed with the findings.

"A small amount of sedative was found in his blood. There was no alcohol or drugs. This does not change my determination ... about the cause of death," a forensic medical expert was quoted as saying in the judge's report.

Civil liberties groups and some lawmakers in Israel, protesting at the state censorship restricting local reporting on the case, have demanded to know whether Zygier's rights were violated by his months of incarceration, isolated from other inmates, and whether his death could have been prevented.

Those calls were echoed in Australia, where media suggested Zygier had been suspected of betraying Mossad missions to Canberra's spy services. Australia was angered in 2010 by the fraudulent use of its passports in the assassination of a Hamas arms procurer in Dubai, which the Gulf emirate blamed on Israel.

NEGLIGENCE IN QUESTION

In her report, the judge said there was prima facie evidence that the Prisons Authority had been negligent, noting that it had received special instructions on supervising the prisoner to prevent a possible suicide.

A Justice Ministry spokesman said state prosecutors would decide whether charges will be brought.

A source briefed on the affair told Reuters that Israel has since installed biometric detectors in the toilet stalls of high-risk prisoners, designed to summon guards within seconds should they stop breathing or display other signs of distress.

Responding to the media reports about Zygier, Israeli Internal Security Minister Yitzhak Aharonovitch told parliament on Monday that the detainee had received frequent family visits and been "supervised by mental-health support and treatment systems, both external and those of the Prisons Service".

Zygier also consulted with Israeli lawyers, one of whom, Avigdor Feldman, said he saw the married father of two shortly before his death to discuss "grave charges" on which he had been indicted, and the possibility of a plea bargain.

"I met with a balanced person ... who was rationally weighing his legal options," Feldman told Israeli television last week, adding Zygier had denied the charges against him.

"His interrogators told him he could expect lengthy jail time and be ostracized from his family and the Jewish community. There was no heart string they did not pull, and I suppose that ultimately brought about the tragic end."

Feldman declined to comment on an Israeli newspaper report that Zygier faced between 10 and 20 years in prison.

Deputy Prime Minister Dan Meridor on Saturday called Zygier's death a "tragedy" but said his treatment was justified.

(Additional reporting by Maayan Lubell; Writing by Dan Williams and Jeffrey Heller; Editing by Mark Heinrich)

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Italy's centre-left moves to reassure doubters

ROME (Reuters) - Italy's centre-left moved on Tuesday to quash fears that it will form a weak government after next weekend's election, saying it was committed to rapid economic reform and that outgoing premier Mario Monti must have a frontline political role.

"We are fully aware that inertia is not an option. We have no time to waste. Italy's problems are very serious and we cannot afford more recession or stagnation ... we need to deliver in terms of jobs, income, simplification," said Stefano Fassina, chief economic official in the centre-left Democratic Party.

Although markets have remained largely sanguine about the result of the February 24-25 vote, there have been rumbles this week about the chances that it will bring instability or a weak, left-leaning government unable or unwilling to carry out the difficult reforms needed to make Italy competitive.

A centre-left coalition headed by Democratic Party (PD) leader Pier Luigi Bersani is widely expected to win the vote and the most recent polls show it 4-5 points ahead of Silvio Berlusconi's centre-right.

But pollsters expect Bersani to fall short of a controlling majority in the Senate, which has equal law-making powers to the lower house, forcing it to seek support from Monti's centrists and raising the specter of a government split by disputes.

Fassina, who comes from the PD's left-wing, dismissed these fears and the suggestion that Monti, the technocrat who led Italy out of a major financial crisis last year, would refuse to ally with a centre-left coalition because of the suspicion it would be dominated by trade unions and leftists.

Monti, who is struggling to attract votes in the centre, said in an interview with Rome's Il Messaggero daily on Tuesday: "We have nothing in common with the left-wing coalition."

He has repeatedly urged Bersani to drop leftist ally Nichi Vendola of the small Left, Ecology and Freedom (SEL) party.

But Fassina told Reuters in an interview: "I guess that Monti, like us, wants to do something positive for this country. If we do not have a majority and Monti can provide the numbers for forming a stable government, why wouldn't he do it? What is the alternative? Another election in a couple of months?"

SAVIOUR

He added: "It would be difficult to explain to the rest of the world that the savior is not providing support for forming a government."

Fassina said the centre-left would seek an alliance with Monti to strengthen the government and reassure markets even if it had a majority by itself.

Despite Monti's lackluster political campaign, Fassina said the outgoing premier, "is an asset for Italy so in one way or another he should stay in the front line." Monti replaced Berlusconi in November 2011 as Italy slid towards a perilous debt crisis.

Fassina said the problems around an alliance stretching from Vendola to Monti "are enormously exaggerated," adding that Vendola had signed a pact to follow majority decisions in the coalition, in which the PD would be dominant.

"Vendola is not the extremist that people like to describe for electoral purposes," Fassina said, referring to the openly gay poet's 7-year tenure as governor of the southern region of Puglia where he has been widely described as a moderate. "There is a pretty good track record," Fassina said.

He added that he was less worried about Vendola than the danger that Monti would not get enough votes to help the centre-left form a majority because of the rise of the anti-establishment 5-Star Movement and Berlusconi's centre-right, describing them both as "populist forces"

Beppe Grillo, the 5-Star leader, has been boosted by a wave of recent corruption scandals and is now running third on close to 20 percent according to polls, well ahead of Monti.

But Fassina added: "Our feeling is that with Monti we will have a majority in the Senate large enough to have a stable government, this is what we understand from the latest polls."

He said the centre-left believed the most urgent reform in Italy was to streamline a notoriously bloated and inefficient public sector, address rampant corruption and transform a byzantine system of justice that causes years of delays in civil as well as criminal cases, a major disincentive to investment.

He said a plethora of local, central and regional authorities had caused paralysis and created hundreds of small and inefficient companies providing local services. The centre-left would close many of these companies and merge others.

Despite the feeling of many senior businessmen that reforming the labor market is the most urgent measure for a new government, Fassina said existing legislation was in line with the European average.

However, he said Monti's labor reforms had failed to close the gap between highly protected older workers and young people on precarious temporary contracts. The PD would encourage permanent contracts by cutting tax costs for companies.

Fassina said Berlusconi would try to retain enough influence to protect his personal interests through blocking anti-trust and anti corruption legislation and preventing an extension of the statute of limitations that has saved him in several fraud trials.

But if a stable government was formed after this election, Berlusconi would be marginalized and lose leadership of his People of Freedom party (PDL) within two years.

(Writing by Barry Moody; Editing by Giles Elgood)

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British shoppers may pay high price from horsemeat scandal

LONDON (Reuters) - For Britons worried last week's beef lasagne was in fact a helping of horse, peace of mind that such a meal will never reach dining tables again may come at a price.

Livestock specialists say that contrary to some public comments by supermarkets, ensuring a chain of quality from farm to table will cost money - particularly at the cheaper, ready-made meal end.

"How can you supply a meal for two people for a pound," said Andrew Hyde, managing director of British meat supplier Traymoor.

"I know what things cost and I know that if I was to put six ounces of quality mincemeat into a lasagne or a cottage pie then I would have to charge twice that price," he said.

The horsemeat scandal, which has triggered product recalls across Europe and damaged confidence in the food industry, erupted last month when tests in Ireland revealed some beef products sold there and in Britain contained equine DNA.

The British government has come under pressure to act and to explain lapses in quality control. Supermarkets, catering and restaurant firms, as well as food manufacturers, are battling to restore consumer confidence amid a welter of lurid headlines playing on a popular British queasiness about eating horsemeat.

Although Tesco, Britain's biggest retailer, has said raising standards "doesn't mean more expensive food," many in the meat industry are not convinced.

"Producing high quality, fully traceable, high welfare standard livestock costs money to put on peoples' tables," said Peter Garbutt, chief livestock adviser for Britain's farmers union, the NFU.

He said consumers had to be more realistic.

Lawmakers are expected to respond to the scandal with further regulation to ensure an ongoing regime of product testing, quality assurance and policing of standards.

With DNA testing costing up to 500 pounds ($770) per sample, creating a robust regime will not come cheap.

PRICE RISES

Analysts reckon value lines, such as frozen beefburgers or spaghetti bolognese ready-meals, are currently so cheap and profit margins so thin that supermarkets have little room for manoeuvre.

They say that spells increased margin pressure for already squeezed suppliers and price rises for consumers.

"I don't think there's any way that we can escape the viewpoint that the price of having guaranteed food in terms of it contains what it says it contains is ultimately higher prices," said Neil Saunders of retail research agency Conlumino.

"We might be speaking about a couple of pence on an item, because this is a game about volume."

That would add to food price inflation, already running at 4.9 percent in the 12 weeks to January 20 as a result of high commodity prices, according to market researcher Kantar, causing a further squeeze on the budgets of shoppers reeling from meager wage rises and government austerity measures.

That is a scenario lawmakers fear.

"The consumer cannot be left to face a Catch-22 where they can either pay for food that complies with the highest standards of traceability, labeling and testing, or accept that they cannot trust the provenance and composition of the foods they eat," said Anne McIntosh, a legislator who chairs the cross-party Food and Rural Affairs Committee, which published a report into the scandal last week.

Food experts say globalization has helped the food industry grow, but has also created a vast system which has fuelled the risk of adulteration.

Mark Price, managing director of upmarket British grocer Waitrose, told Reuters the horsemeat scandal was the inevitable result of big grocers putting pressure on suppliers.

"If you have a competition that says: Who can sell the cheapest stuff? Inevitably at a point in time you will get something like this," he said.

Two Competition Commission investigations have cleared supermarkets of unduly pressuring suppliers.

Tesco CEO Philip Clarke said on Friday he had ordered a review of the firm's approach to its supply chain. He wants relationships with its suppliers to become more "transparent and collaborative".

Co-operative Group CEO Peter Marks similarly spoke of taking a closer look at its supply chain.

Meanwhile, although the horsemeat scandal has undermined grocers' relationship with customers, investors appear unperturbed.

Last week, the height of the crisis, shares in Britain's food retail sector rose 1.2 percent. So far this year the sector is up 6.2 percent.

($1 = 0.6460 British pounds)

(Editing by Jeremy Gaunt.)

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Armenian president promises security after election victory

YEREVAN (Reuters) - Armenian President Serzh Sarksyan promised on Tuesday to make the country secure and stable after cruising to victory in an election which international vote monitors said lacked real competition.

But Sarksyan faces a challenge in his second five-year term to prevent tensions increasing with Azerbaijan over the enclave of Nagorno-Karabakh that could lead to a new war in the South Caucasus, where pipelines carry Caspian oil and gas to Europe.

Preliminary results showed Sarksyan won 58.6 percent of votes cast in Monday's election, enough to avoid a run-off. But his victory provoked allegations of fraud from his opponents.

"Armenia chose the path towards a safe Armenia and I am happy and proud of the fact that every resident of Armenia will be on that path," Sarksyan, 58, told celebrating supporters.

Sarksyan's closest rival, U.S.-born former Foreign Minister Raffi Hovannisian, trailed on nearly 37 percent.

International observers said the vote was an improvement on recent elections in the former Soviet republic, including the 2008 presidential ballot in which 10 people were killed.

"However, the limited field of candidates meant that the election was not genuinely competitive," representatives of the Parliamentary Assembly of the Organization for Security and Cooperation in Europe said in a statement.

"The candidates who did run were able to campaign in a free atmosphere and to present their views to voters, but the campaign overall failed to engage the public's interest."

Several of Sarksyan's potential rivals, most notably former President Levon Ter-Petrosyan, decided not to run because they feared the election would be skewed in the president's favor.

A minor candidate was shot and wounded during campaigning, and police received 70 complaints of voting violations. The result was in line with opinion polls, however.

Hovannisian's Heritage Party alleged some ballots cast for opposition candidates had been thrown out. Up to 500 supporters gathered in Yerevan late on Tuesday, calling for Sarksyan to quit and promising more protests, but there was no violence.

EXPECTED OUTCOME

Armenians had expected Sarksyan to win and there was little celebrating. "I expect that things will get better in the next five years. And after that of course we will need to change (the president). That's all," said Yerevan resident Roza Atovyan.

Another woman in Yerevan, Elana Akapova, said: "The president has a lot of administrative power. Therefore it's natural that he received the majority of the vote."

The election result strengthens Sarksyan's hold on Armenia, which borders Iran, Georgia, Turkey and Azerbaijan, after his Republican Party won a parliamentary election last year.

Sarksyan's promises of economic recovery went down well with voters in the country of 3.2 million, where more than 30 percent live below the poverty line. The average monthly wage is about $300 and unemployment was 16 percent last year.

Armenia is an important potential ally for the West which is trying to ensure Iran does not develop nuclear weapons, although tightening international economic sanctions on its neighbors could affect Armenia's trade and economy.

Sarksyan has outlined no big policy changes and investors and foreign governments are worried by Armenia's fraught relations with Azerbaijan.

FEARS OF NEW CONFLICT

About 30,000 people were killed in the war over Nagorno-Karabakh in the 1990s and Azerbaijan uses its diplomatic and economic muscle to isolate Yerevan. It has vastly increased military spending in the last few years, alarming Yerevan.

Nagorno-Karabakh is an ethnic Armenian-majority enclave inside Azerbaijan, which Armenia-backed rebels wrested from Azeri troops. Firefights along the border still kill troops on both sides and experts say a wider conflict is possible.

Sarksyan has accused Azerbaijan of threatening a new conflict. Azerbaijan denies it is the aggressor and says Armenians should hand back control of the mountainous enclave.

"In terms of domestic policy, we should expect a continuation of deepening ties with the West and the European Union," said Richard Giragosian, director of the Regional Studies Centre think tank in Yerevan.

He ruled out a breakthrough over Nagorno-Karabakh, saying: "Both sides remain too far apart."

Without a shift in regional politics, durable economic growth will be difficult for Armenia while its borders with Azerbaijan and Turkey remain closed. Turkey shut the border in 1993 in solidarity with its ethnic kin in Azerbaijan.

Most regional pipeline projects between growing regional power Turkey and the oil and gas-producing Azerbaijan isolate Armenia, making Yerevan more dependent on ties with its Soviet-era master Moscow, which has a military base on Armenian soil.

In congratulating Sarksyan, Russian President Vladimir Putin on Tuesday expressed a desire to further strengthen ties with Yerevan, which has a collective security agreement with Moscow.

(Reporting by Hasmik Mrktchyan and Margarita Antidze; Writing by Timothy Heritage; Editing by Pravin Char)

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Netanyahu reaches first deal on new Israel government: source

JERUSALEM (Reuters) - Israeli Prime Minister Benjamin Netanyahu took his first step in forming a new government on Tuesday by reaching a coalition deal with former Foreign Minister Tzipi Livni, a political source said.

A draft copy of a five-page coalition deal, obtained by Reuters, said the centrist Livni would be named Justice Minister and would also resume a role similar to one she held in a previous government as a peace negotiator with the Palestinians.

Peace talks have been frozen since 2010, and the coalition deal said Netanyahu and Livni together would "work, upon the establishment of the new government, toward resuming the diplomatic process".

The deal would be the first for Netanyahu after weeks of negotiating with party heads since his right-wing Likud won a January 22 election, but came up short of a parliamentary majority.

Likud said in a statement the two party leaders would make a joint announcement in parliament later on Tuesday. A Likud source, speaking on condition of anonymity, told Reuters Livni had agreed to join Netanyahu's new government.

Netanyahu has another month to secure enough coalition partners to control at least half of the 120 seats in parliament. Likud, running on a joint ticket with another right-wing party, won 31 seats in the vote. Livni heads a small centrist party that won six.

(Reporting by Allyn Fisher-Ilan and Ari Rabinovitch; Editing by Tom Pfeiffer)

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Iran says it is converting uranium, easing bomb fears

DUBAI (Reuters) - Iran acknowledged on Tuesday that it was converting some of its higher-grade enriched uranium into reactor fuel, a move that could help to prevent a dispute with the West over its nuclear program hitting a crisis in mid-2013.

Conversion is one way for Iran to slow the growth in its stockpile of material that could be used to make a bomb. That stockpile is currently projected to reach a level intolerable to Israel in mid-year, just as Iran's room for negotiation is being limited by a presidential election in June.

Iranian Foreign Ministry spokesman Ramin Mehmanparast was asked at a weekly news conference about a Reuters report that Iran has converted small amounts of its 20-percent enriched uranium into reactor fuel.

"This work is being done and all its reports have been sent to the International Atomic Energy Agency (IAEA) in a complete manner," he was quoted as saying by the state news agency IRNA.

It was Iran's first acknowledgment that it had apparently resumed converting into fuel small amounts of uranium enriched to a concentration of 20 percent fissile material.

Iran's production of that higher-grade uranium worries the major powers because it is only a short technical step away from the 90-percent purity needed for a weapon.

On-off negotiations with the major powers and four rounds of U.N. Security Council sanctions have failed to persuade Iran to stop its enrichment activities, and the IAEA has been refused full access to investigate other suspect elements of the nuclear program.

Iran denies that it is seeking a weapon and says its nuclear program serves only peaceful purposes such as electricity and the production of medical isotopes.

CRITICAL MASS

But Israel, widely believed to be the only nuclear-armed country in the Middle East, has indicated that Iran's stockpile will reach a level in June at which it considers it must attack to stop Iran acquiring enough fissile material for a bomb. With a presidential election taking place that month, Tehran's room to make concessions to foreign powers is limited.

A U.S. official sought to reassure Israel this week on the determination of President Barack Obama, due to visit the region shortly, to curb Iran's nuclear program, according to an Israeli official who declined to be named.

Rose Gottemoeller, acting U.S. undersecretary of state for arms control and international security, "reiterated the Americans' commitment to preventing a nuclear Iran, and their worries about regional proliferation, were Iran to go nuclear", said the official, who met Gottemoeller.

Iran averted a potential crisis last year by converting some 100 kg of its 20-percent enriched uranium into fuel, suggesting to some that it was carefully keeping below the threshold set by Israel, while still advancing its nuclear technology.

It is not believed to have enriched uranium beyond 20 percent. A fuller picture is unlikely until a new IAEA report on Iran's nuclear activity, due by late February.

Separately, officials from the IAEA are due to hold talks in Tehran on Wednesday in the hope of restarting their long-stalled inquiry into Iran's nuclear program.

The U.N. agency, whose mission is to prevent the spread of nuclear weapons, has been trying for a year to negotiate a so-called structured approach with Iran that would give its inspectors access to sites, officials and documents.

The IAEA especially wants access to the Parchin military complex southeast of Tehran where it believes explosives tests relevant for nuclear weapons development may have taken place and been subsequently concealed, allegations that Iran denies.

"READY FOR DEAL"

Mehmanparast said Iran was ready to come to a "comprehensive agreement" with the IAEA if Tehran's nuclear rights were recognized. Part of this agreement could include a visit to Parchin, he said.

But Fereydoun Abbasi-Davani, head of the Atomic Energy Organisation of Iran, on Tuesday criticized the IAEA's handling of documents related to Iran, signaling the continued mistrust between the agency and Tehran.

"Unfortunately their system is not sufficiently secure," Abbasi-Davani said, according to the Iranian Students' News Agency (ISNA). "They need to be more careful in their interactions with Iran."

Last year Abbasi-Davani accused the U.N. agency of a "cynical approach" and mismanagement, and said "terrorists and saboteurs might have intruded" into the agency.

Iran and six world powers, known as the P5+1, are due to hold a new round of talks on the nuclear program in Kazakhstan on February 26.

U.S. Secretary of State John Kerry said on Friday that the powers were ready to respond if Iran came to the talks prepared to discuss "real substance".

Foreign Minister Ali Akbar Salehi, visiting Moscow, said Iran was "counting on there being positive and constructive steps made to resolve this problem at the upcoming meeting".

In Tehran, Salehi's spokesman Mehmanparast responded to news that North Korea had conducted its third nuclear test in defiance of existing United Nations resolutions by saying: "We need to come to a point where no country will have any nuclear weapons."

(Editing by Kevin Liffey)

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Italian ex-spy chief gets 10 years in CIA case

MILAN (Reuters) - Italy's former military intelligence chief was sentenced to 10 years in jail on Tuesday for his role in the kidnapping of an Egyptian Muslim cleric in an operation organized by the United States.

An American former CIA station chief was this month sentenced in absentia to seven years in jail after imam Abu Omar was snatched from a Milan street in 2003 and flown to Egypt for interrogation during the United States' "war on terror".

The Milan appeals court sentenced Niccolo Pollari, former head of the Sismi military intelligence agency, to 10 years in prison and his former deputy Marco Mancini to nine years.

The court also awarded a provisional 1 million euros in damages to the imam, the Ansa news wire reported, as well as 500,000 euros to the imam's wife.

Nicola Madia, a lawyer for Pollari, said he was disturbed by the decision and that his client would appeal to Italy's highest court. Pollari will not have to go to jail until the appeals process has been exhausted.

Madia said Pollari had not been able to defend himself properly because successive Italian governments had declared the case to be covered by state secrecy laws.

The sentences are part of the fallout from a campaign waged by then U.S. president George W. Bush after the September 11, 2001, attacks on the United States.

Abu Omar says he was tortured for seven months after being flown to Egypt in what was known as an "extraordinary rendition" operation. He was resident in Italy at the time of his abduction.

Former CIA Rome station chief Jeffrey Castelli and two other American officials were convicted in their absence by the Milan appeals court for their part in the plot, but are unlikely to serve their sentences.

Human rights groups have been fighting to expose heavy-handed tactics used by the CIA during the Bush administration.

(Reporting by Sara Rossi; Writing by Keith Weir; Editing by Kevin Liffey)

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Air base falls as Assad's forces come under pressure

AMMAN (Reuters) - Syrian opposition fighters captured a military airport near the northern city of Aleppo on Tuesday in another military setback for President Bashar al-Assad's forces which have come under intensifying attack across the country.

The airport is the latest military facility to fall under rebel control in a strategic region situated between Syria's industrial and commercial center and the country's oil- and wheat- producing heartland to the east.

Fighting in the nearly two-year-old conflict has intensified in the three weeks since the political leadership of the opposition offered to negotiate a departure for Assad.

In the first direct government response, Syria's minister for "national reconciliation", Ali Haidar, said he was willing to travel abroad to meet Moaz Alkhatib, the Cairo-based president of the Syrian National Coalition opposition group.

Authorities had previously said they would talk to the "patriotic opposition" - figures who have not allied themselves with the armed rebellion. But most centrist opposition figures have left the country since Abdel-Aziz al-Khayyer, a proponent of dialogue and non-violence, was arrested last year.

"I am willing to meet Mr Khatib in any foreign city where I can go in order to discuss preparations for a national dialogue", Haidar told the Guardian newspaper.

But Haidar said the authorities rejected any dialogue that aims "to hand power from one side to another" and insisted that formal negotiation must take place on Syrian soil.

The main push for talks on a transition is coming from U.N. envoy Lakhdar Brahimi, a veteran diplomat who helped mediate an end to civil war in neighboring Lebanon and warned that Syria could become a failed state.

The Syrian uprising, in which 60,000 people have been killed, has been the bloodiest of the Arab revolts that already toppled four autocrats in Libya, Egypt, Tunis and Yemen.

With the minority Alawite sect, an offshoot of Shi'ite Islam, dominating power in Syria, the conflict has deepened the Shi'ite-Sunni divide in the Middle East.

JETS OVER DAMASCUS

In the capital Damascus, residents and activists said the army had moved tanks to central Abbasid Square to shore up its defensive lines after rebels breached it last week and then struck several security targets in the heart of the capital.

Jets bombarded rebel held areas in the east of the capital and in an expanse of farmland and urban areas known as Eastern Ghouta, from where rebels have launched an attack to cut off the loyalist supply lines.

"The bombing has been terrible. The centre of Damascus is shaking. You can hear the jets from here," said one woman.

Despite a large military arsenal - opposition activists reported several Scud missiles being fired at unknown targets from an army base north of Damascus - Assad's forces appeared to be on the defensive in many parts of the country.

The army and a plethora of security forces remain entrenched in fortress-like bases in Damascus and the provincial capitals, where their advantages in air power and heavy weaponry have kept the opposition from taking over the major cities.

Jarrah air base, 60 km (40 miles) east of Aleppo, came under the control of rebel units who have been surrounding it for weeks, and the highway linking Aleppo to the east of the country is in opposition hands, the Sham News Network said.

Video footage showed fighters from the Islamic Free Syria Movement inspecting the airport. Several fighter jets were shown on the ground at the airport and in concrete shelters.

Abu Abdallah Minbij, one of the opposition commanders who planned the attack on the airport, said by phone that two operational MiG jets and ammunition were found intact at the base, along with 40 disused fighter jets.

"The airport was being used to bomb northern and eastern rural Aleppo. By capturing it, we have cut the regime's supply line from Aleppo to the east," Minbij said.

He said the army will now struggle to send reinforcements to stop a rebel advance in the adjacent Raqqa province, where rebels have captured the country's largest hydro-electric dam this week.

In Sfeira, a nearby town in rural Aleppo, footage showed opposition fighters surrounding a captured tank in the middle of the town, with the body of three soldiers on the ground.

Assad's father, the late President Hafez al-Assad, used carrot and stick tactics to build alliances with the Sunni Muslim tribes in rural Aleppo and in Raqqa and Deir al-Zor to the east that cemented the decades long domination of his Alawite minority on the country.

But most of the alliances between the ruling minorities have broken down since the 22-month uprising erupted in March 2011.

Opposition activists said Liwa al-Islam, the largest rebel unit in the area, has thousands of fighters belonging to tribes that have abandoned Assad, such as the Anzeh tribe, which extends to Saudi Arabia.

They said the focus of rebel operations in Aleppo the last few weeks have been to neutralize four airports in the province, including Jarrah, which have been also used as artillery bases to shell surrounding rebel-held countryside and towns.

"The airports have been a source of aerial bombardment and indiscriminate shelling on rural Aleppo and on the city itself," activist Abu Louay al-Halabi said by phone from Aleppo.

He said rebels have hit planes on the ground belonging to two squadrons based in the airport of Minbij, 70 km (45 miles) northeast of Aleppo and overran several buildings in Nairab airport, which is adjacent to the city and remains in government hands.

"Once the airports are neutralized, the opposition's grip on Aleppo will become less tenuous and the fighters can concentrate on taking the whole city," Halabi said.

(Reporting by Khaled Yacoub Oweis; Editing by Peter Graff)

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Egypt court jails Israeli for two years: court sources

CAIRO (Reuters) - An Egyptian court sentenced an Israeli man to two years in prison for crossing illegally into the Sinai peninsula, court sources said on Tuesday.

Egypt said in December it had arrested the man after he slipped into the Sinai's Taba region and took photographs of security buildings.

State media at that time identified the man, Andrei Pshenichnikov, as a 24-year-old army officer. Israeli media said he was a civilian and a pro-Palestinian activist.

The ruling by the court in the Nuweiba area of Sinai was issued on Monday.

The court sources said Pshenichnikov had not given a convincing explanation for why he crossed into Egypt illegally when he could have entered as a tourist.

Sinai has suffered from lax security since Egypt's 2011 uprising, which overthrew President Hosni Mubarak. Egypt regained the peninsula, which Israel occupied during a 1967 war, after the two signed a peace deal in 1979.

The two countries have maintained an uneasy peace since then, and their relations have been marred by several high-profile cases in which Egyptian authorities accused Israel of espionage.

Israeli tourists have continued to holiday in the Sinai, although in lower numbers since a spate of bomb attacks on resorts from 2004 to 2006.

(Reporting by Yousri Mohamed; Writing by Alexander Dziadosz; Editing by Jon Hemming)

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Pope's resignation could hurt Berlusconi in Italian vote

ROME (Reuters) - Pope Benedict's resignation could limit the chances of former Italian prime minister Silvio Berlusconi closing the gap on the center-left frontrunner before this month's election, some pollsters and analysts say.

Berlusconi, who seemed certain to lose a few months ago, has staged an aggressive campaign based on tax-cut promises that has eroded the lead of Pier Luigi Bersani's Democratic Party (PD) and raised the prospect of an inconclusive outcome.

However, some pollsters say the pope's resignation could clip Berlusconi's wings by eclipsing the election campaign on television and newspapers at a time when he has just 12 days left to win over voters.

"This will put the campaign on ice for a while and that is bad news for Berlusconi who still needs to make up ground," said Renato Mannheimer, head of the ISPO polling agency.

Final polls published on Friday before a two-week blackout ahead of the February 24-25 vote gave Bersani an average lead of 5.7 points, down from above 10 percent before start of the campaign.

Under Italy's complicated voting system, that gap would give Bersani a comfortable majority in the Chamber of Deputies, but may not guarantee him a majority in the Senate, where seats are allocated on a regional basis.

Berlusconi's media blitz has involved a spate of "shock announcements" including the promised reimbursement of a hated housing levy, the abolition of payroll taxes on new hires, and an amnesty for tax evaders.

CAMPAIGN COVERAGE

With the election campaign relegated from page one to the around page 15 of the main newspapers on Tuesday, the impact of such announcements can be expected to be diluted for several more days at least.

The pope's decision also dominated Berlusconi's own media empire on Tuesday. He controls three of Italy's seven national free-to-air television channels and the largest magazine publisher.

Although coverage of the Vatican may taper off in the coming days, speculation over Benedict's successor will ensure that it shares the spotlight with the election right up to voting day.

"This is going to take visibility away from Berlusconi, and that should benefit the frontrunner, which is the PD," said Roberto D'Alimonte, Italy's top election expert. "Berlusconi needs space in the media to close the gap."

Another aspect cited by some commentators was a possible connection in voters' minds between the decision of the pope to step aside due to his age and the refusal of Berlusconi to do the same even though he has been prime minister four times and is himself 76-years-old.

"After the pope's announcement Berlusconi seems 20 years older," said political commentator Antonio Polito in a tweet that reflected scores of similar remarks on the social network.

However, some pollsters were sceptical that Benedict's historic decision could affect voting behaviour as all the biggest parties were well known and their broad policy positions have already been laid out.

Nicola Piepoli of the prominent Piepoli Institute said he believed the center left's lead had already stabilized, while Maurizio Pessato of the SWG agency said the election race would soon force its way back to the front of Italy's news agenda.

"One or two days won't change anything. Now 90 percent of the news is about the pope, but tomorrow it will be 70 percent, and the next day 50 percent and so on," Pessato said.

(Editing by Alison Williams)

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Iran denies officials to be questioned over Buenos Aires bombing

DUBAI (Reuters) - Tehran denied on Tuesday it had agreed to allow international investigators to question Iranian officials over the 1994 bombing of a Jewish community center in Buenos Aires as part of a plan to form a truth commission.

Following the bombing which killed 85 people, Argentinian authorities in 2007 secured Interpol arrest warrants for five Iranians and a Lebanese. Iran denies links to the attack.

Argentina said last month it had agreed with Iran to establish a "truth commission" made up of foreign legal experts to review all the relevant documentations of the attack, which Argentine courts accuse Tehran of sponsoring.

But Iranian Foreign Ministry spokesman Ramin Mehmanparast on Tuesday denied plans that Iranian officials would be questioned over the bombing.

"This report is a lie," Mehmanparast said during a news conference in Tehran reported by the Iranian Students' News Agency (ISNA).

Israel and Jewish groups had criticized the pact as they fear it could weaken the case against Iranian officials. It was also seen as a diplomatic victory for Iran as it faces international isolation and sanctions over its nuclear program.

The memorandum of understanding between Iran and Argentina reportedly outlined plans for Argentine legal officials to meet in Tehran to question people named by Interpol.

Iranian Defence Minister Ahmad Vahidi is among the Iranian officials sought by Argentina, which is home to Latin America's largest Jewish community.

(Reporting by Zahra Hosseinian; Editing by Angus MacSwan)

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Putin aims to soften Duma bill on preventing wealth going abroad

MOSCOW (Reuters) - President Vladimir Putin has submitted a bill to Russia's parliament aimed at preventing officials stashing illicit wealth abroad, seeking to make good on a pledge to crack down on corruption and stem capital flight.

But the text, published on Tuesday, is weaker than one already proposed by the State Duma, the lower house, which unlike Putin's bill would not allow apparatchiks to own property abroad or to open foreign bank accounts.

In his first annual address to the nation since returning to the Kremlin for a third presidential term, Putin called in December for "a whole system of measures to 'de-offshore' our economy".

The legislative initiative seeks to take the wind out of the sails of election protesters who rallied around slogans denouncing "swindlers and thieves" around Putin as he campaigned for the presidential election last March.

Russia has suffered annual net capital outflows of around $80 billion in recent years, much of which has been driven by officials shifting money abroad, say anti-corruption activists.

Russia ranks 133rd, alongside Honduras and Guyana, out of 174 states in Transparency International's 2012 Corruption Perception Index. It is under international scrutiny as it chairs the Group of 20 nations this year and has pledged to push forward the economic forum's anti-corruption agenda.

The bills are intended to apply to senior state and regional officials, lawmakers, judges, prosecutors, executives at state-owned companies and members of the central bank board.

THE PRICE OF LOYALTY

But Putin's draft stops short of stringent measures that could alienate the loyalists whom he relies on to uphold the 'vertical' power structure he has built up since first rising to Russia's highest office in 2000.

By allowing officials to open foreign accounts only through Russian banks, Putin's bill could benefit the state banks VTB and Sberbank, which have subsidiaries in several European countries.

Sberbank's head German Gref has lobbied for easier rules.

"This is a kind of a loophole that would make it possible to finance real estate investments abroad but under tighter control with better transparency," said Oleg Vyugin, a former Russian financial market regulator who now advises Morgan Stanley.

Putin's ruling party holds a secure majority over the chamber, but the fact that he has submitted his own version reflects Kremlin concern that the Duma version is too harsh.

Deputy Speaker Sergey Zheleznyak was quoted by the Interfax news agency as saying that Putin's proposal, while allowing ownership of property abroad, would require this to be properly declared.

That, say lawmakers and bankers, could lead to a compromise being passed that would put the onus on declaring personal wealth without unduly affecting officials who lead increasingly international lifestyles.

If an official, their spouse or children who are minors violate the law, that official would lose his or her job, according to Putin's draft.

After the law enters force, affected officials would have three months to close overseas accounts at foreign-owned banks and sell their investments in foreign stocks and bonds.

Putin's spokesman, Dmitry Peskov, said trusts would also be covered by the ban. Offshore trusts often make it possible to conceal the identity of an investment's beneficial owner.

(Reporting by Katya Golubkova and Maria Tsvetkova; Editing by Douglas Busvine and Liffey)

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Small Russian banks help Iran's oil exports: minister

MOSCOW (Reuters) - Small Russian banks are participating in schemes to finance Iranian oil exports, which are the target of U.S. and European sanctions against Tehran, Russian Energy Minister Alexander Novak said on Tuesday.

"Large (banks) are not taking part. Small ones are, yes," Novak told reporters, in the first such confirmation by a top Russian official.

"Major banks are not involved as they have taken into consideration the possibility of any sanctions to which they might become subject."

In 2011, the U.S. Congress passed a law requiring buyers of Iranian oil to make significant cuts to their oil purchases, or risk being cut off from the U.S. financial system.

The European Union followed suit by imposing sanctions last July against Iran's oil and shipping industries which barred Europe-based insurers from covering tankers that carry Iranian oil. Later, it also added bans on financial transactions and on sales to Iran of shipping equipment, among other measures.

Novak, who spoke after meeting Iranian Foreign Ali Akbar Salehi in Moscow, declined to name either the banks involved or the scale and nature of their possible financing of oil exports from Iran.

Salehi, in Moscow on a trade mission, said that Russian companies would be welcome to participate in developing the growing oil industry of the OPEC member state.

The West suspects of Iran of seeking to acquire atomic weapons, while Tehran insists its nuclear program is peaceful. Six-power talks with Iranian nuclear negotiators are due to be held in Almaty, Kazakhstan, on February 26.

(Reporting by Vladimir Soldatkin; Editing by Douglas Busvine and William Hardy)

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Britons give horse a try as scandal piques interest

LONDON (Reuters) - Speciality meat suppliers in Britain have seen a surge in sales of horse burgers, with a scandal over the discovery of horsemeat in beef burgers and ready meals apparently piquing the curiosity of some shoppers.

Viewed as a delicacy in some European countries, in South America and in east Asia, horsemeat is generally not eaten in Britain where a horse loving public has traditionally viewed the idea of consuming it with some distaste.

The discovery of horse DNA in beef burgers and spaghetti bolognese sold by Britain's retailers, including market leader Tesco, and in beef lasagne made by frozen foods group Findus, has drawn widespread condemnation, with government ministers blaming an "international criminal conspiracy".

However, extensive media coverage of the Europe-wide scandal and an outbreak of horse jokes on twitter, e-mail and texts has also sparked interest in the consumption of horsemeat and other even more adventurous meats.

"While people are putting horse into their shopping cart on the website they are also putting in things like zebra, llama and alpaca," said Paul Webb, director of central England-based speciality meat supplier Exotic Meats.

Horsemeat, which has a sweet, gamey flavor, is cheaper and healthier than beef, containing half the fat, more Omega 3, and high in protein and iron.

Though none of Britain's supermarkets sell horsemeat, it is available through speciality meat suppliers and is on the menu of a few notable restaurants, such as L'escargot Bleu in Edinburgh. Celebrity chef Gordon Ramsay has also heralded it.

Exotic Meats has seen sales of horsemeat burgers, steaks and mince increase ten-fold since the scandal erupted on January 15.

"People are inquisitive, intrigued by what it tastes like," said Webb, noting horsemeat products were proving popular for dinner party hosts who wanted to provide "a good talking point."

Exotic Meats' horsemeat is sourced from either France, Spain or Italy and processed in Britain by an EU approved plant.

Last week in response to the Findus scandal the firm posted on its website a recipe for horsemeat lasagne.

RIGHT TO EAT

Berwickshire, Scotland-based Kezie Foods, which sells horsemeat products alongside elk, kangaroo and crocodile, has seen horsemeat sales double over the last three weeks, with strong demand from restaurants as well as individuals.

"Whenever you have issues to do with alternative meats you either have people who decide that's not for them or people who want to exercise their right to eat whatever they choose to eat," said director Walter Murray.

For some the idea of eating horse remains abhorrent.

"For many horse owners, eating horsemeat is as repulsive a concept as eating cat or dog," said Victoria Spicer, editor of Horse & Country TV.

"The horse has been an integral part of Britain's history and culture, and we owe our equine friends much more than this."

The British Retail Consortium, whose members represent 80 percent of the UK retail industry, said although there was no evidence of consumers avoiding beef they were being more selective in beef burger purchases, with more interest in fresh burgers rather than frozen ones.

"What we're hearing from our members is that there hasn't been any drastic change in customers' buying patterns as a result of any of this because they're clear that this is not a safety issue," said a BRC spokesman.

However, independent butchers said they have seen an upturn in recent trade.

"Independent butchers are experiencing greater footfall at the present time," said Roger Kelsey, CEO of the National Federation of Meat and Food Traders, which represents Britain's traditional high-street butchers.

"That's basically because in the eyes of the general public local traders are a better source of supply, due to their on site controls, because they tend to source product from local sources and they produce their own products on site."

(Reporting by James Davey; Editing by Mark Potter)

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China joins U.S., Japan in condemning North Korea nuclear test

SEOUL (Reuters) - North Korea conducted its third nuclear test on Tuesday in defiance of existing U.N. resolutions, drawing condemnation from around the world, including from its only major ally, China, which summoned the North Korean ambassador to protest.

The reclusive North said the test was an act of self-defense against "U.S. hostility" and threatened further, stronger steps if necessary.

It said the test had "greater explosive force" than the 2006 and 2009 tests. Its KCNA news agency said it had used a "miniaturized" and lighter nuclear device, indicating that it had again used plutonium which is more suitable for use as a missile warhead.

North Korean leader Kim Jong-un, the third of his line to rule the country, has presided over two long-range rocket launches and a nuclear test during his first year in power, pursuing policies that have propelled his impoverished and malnourished country closer to becoming a nuclear weapons power.

China, which has shown signs of increasing exasperation with the recent bellicose tone of its neighbor, summoned the North Korean ambassador in Beijing and protested sternly, the Foreign Ministry said.

Foreign Minister Yang Jiechi said China was "strongly dissatisfied and resolutely opposed" to the test and urged North Korea to "stop any rhetoric or acts that could worsen situations and return to the right course of dialogue and consultation as soon as possible".

China is a permanent member of the Security Council.

U.S. President Barack Obama labeled the test a "highly provocative act" that hurt regional stability and pressed for new sanctions.

"The danger posed by North Korea's threatening activities warrants further swift and credible action by the international community. The United States will also continue to take steps necessary to defend ourselves and our allies," Obama said in a statement.

The Security Council will meet on Tuesday to discuss its reaction to the test, although North Korea is already one of the most heavily sanctioned states in the world and has few external economic links that can be targeted.

Japanese Prime Minister Shinzo Abe said the test was a "grave threat" that could not be tolerated. U.N. Secretary-General Ban Ki-moon said the test was a "clear and grave violation" of U.N. Security Council resolutions.

Russian Foreign Minister Sergei Lavrov urged North Korea to abandon its nuclear arms program and return to talks. NATO condemned the test as an "irresponsible act" that posed a grave threat to world peace.

The test "was only the first response we took with maximum restraint", an unnamed spokesman for the North Korean Foreign Ministry, which acts as Pyongyang's official voice to the outside world, said in a statement carried by the official KCNA news agency.

"If the United States continues to come out with hostility and complicates the situation, we will be forced to take stronger, second and third responses in consecutive steps."

North Korea often threatens the United States and its "puppet", South Korea, with destruction in colorful terms.

North Korea told the U.N. disarmament forum in Geneva that it would never bow to resolutions on its nuclear program and that prospects were "gloomy" for the denuclearization of the divided Korean peninsula because of a "hostile" U.S. policy.

South Korea, still technically at war with the North after the 1950-53 civil war ended in a mere truce, also denounced the test.

The magnitude was roughly twice as large as that of 2009, Lassina Zerbo, director of the international data centre division of the Vienna-based Comprehensive Nuclear-Test Ban Treaty Organization, said. The U.S. Geological Survey said that a seismic event measuring 5.1 magnitude had occurred.

"It was confirmed that the nuclear test that was carried out at a high level in a safe and perfect manner using a miniaturized and lighter nuclear device with greater explosive force than previously did not pose any negative impact on the surrounding ecological environment," KCNA said.

Despite China's strong response, the test is likely to be a major embarrassment for Beijing, the North's sole major economic and diplomatic ally.

"The test is hugely insulting to China, which now can be expected to follow through with threats to impose sanctions," said Mark Fitzpatrick of the International Institute for Strategic Studies think tank.

North Korea trumpeted the announcement on its state television channel to patriotic music against the backdrop of an image of its national flag.

It linked the test to its technical prowess in launching a long-range rocket in December, a move that triggered the U.N. sanctions, backed by China, that Pyongyang said prompted it to take Tuesday's action.

The North's ultimate aim, Washington believes, is to design an intercontinental ballistic missile capable of carrying a nuclear warhead that could hit the United States. North Korea says the program is aimed merely at putting satellites in space.

North Korea used plutonium in previous nuclear tests and prior to Tuesday there had been speculation it would use highly enriched uranium so as to conserve its plutonium stocks as testing eats into its limited supply of the material that could be used to construct a nuclear bomb.

"VICIOUS CYCLE"

Despite its three nuclear tests and long-range rocket tests, North Korea is not believed to be close to manufacturing a nuclear missile capable of hitting the United States.

South Korea's Yonhap news agency said Pyongyang had informed China and the United States of its plans to test on Monday, although this could not be confirmed.

When North Korean leader Kim, 30, took power after his father's death in December 2011, there were hopes the he would bring reforms and end Kim Jong-il's "military first" policies.

Instead, the North, whose economy is smaller than it was 20 years ago and where a third of children are believed to be malnourished, appears to be trapped in a cycle of sanctions followed by further provocations.

"The more North Korea shoots missiles, launches satellites or conducts nuclear tests, the more the U.N. Security Council will impose new and more severe sanctions," said Shen Dingli, a professor at Shanghai's Fudan University. "It is an endless, vicious cycle."

But options for the international community appear to be in short supply.

Tuesday's action appeared to have been timed for the run-up to February 16 anniversary celebrations of Kim Jong-il's birthday, as well as to achieved maximum international attention.

Significantly, the test comes at a time of political transition in China, Japan and South Korea, and as Obama begins his second term. He will likely have to tweak his State of the Union address due to be given on Tuesday.

Japanese Prime Minister Shinzo Abe is bedding down a new government and South Korea's new president, Park Geun-hye, prepares to take office on February 25.

China too is in the midst of a once-in-a-decade leadership transition to Xi Jinping, who takes office in March. Both Abe and Xi are staunch nationalists.

The longer-term game plan from Pyongyang may be to restart talks aimed at winning food and financial aid. China urged it to return to the stalled "six-party" talks on its nuclear program, hosted by China and including the two Koreas, the United States, Japan and Russia.

Its puny economy and small diplomatic reach mean the North struggles to win attention on the global stage - other than through nuclear tests and attacks on South Korea, last made in 2010.

"Now the next step for North Korea will be to offer talks... - any form to start up discussion again to bring things to their advantage," said Jeung Young-tae, senior research fellow at the Korea Institute for National Unification in Seoul.

The European Union's foreign policy chief, Catherine Ashton, urged North Korea to refrain from further provocation.

EU member Denmark called on China to step up to the plate and use its influence to rein in its ally.

"This deserves only one thing and that is a one-sided condemnation," said Foreign Minister Villy Sovndal. "North Korea is likely the most horrible country on this planet."

(Additional reporting by Jack Kim, Christine Kim and Jumin Park in SEOUL; Linda Sieg in TOKYO; Louis Charbonneau at the UNITED NATIONS; Fredrik Dahl in VIENNA; Michael Martina and Chen Aizhu in BEIJING; Mette Fraende in COPENHAGEN; Adrian Croft, Charlie Dunmore and Justyna Pawlak in BRUSSELS; Editing by Nick Macfie)

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Iran nuclear talks set for February 26

DUBAI (Reuters) - Iran and world powers announced new talks on Tehran's nuclear program on February 26, but hopes of progress after Tuesday's announcement were tempered when an Iranian official said the West's goal in talking was to undermine the Islamic republic.

First word of the meeting, to be held in Kazakhstan, came in comments from Iran's Supreme National Security Council to state news agency IRNA. Later, a spokesman for EU foreign policy chief Catherine Ashton said she hoped to make progress in allaying concerns about a program Iran denies has a military purpose.

Both sides said the widely expected appointment to meet was made on Tuesday by Iran's deputy nuclear negotiator Ali Bagheri and European Union counterpart Helga Schmid. However, there were immediate signs from Iran, which holds a presidential election in June, that powerful figures were skeptical of their worth.

Western powers say Iran may be close to having the capacity to build a nuclear weapon, though Tehran insists it is seeking only electricity. The United States and its allies, which have imposed tough economic sanctions, are keen to show progress on an overall agreement for curbing and monitoring Iran's nuclear activities - not least because Israel, seeing itself especially threatened, has warned it could mount a pre-emptive attack.

A spokesman for Ashton, who represents the five permanent U.N. Security Council members plus Germany, said: "She hopes that the talks will be productive and that concrete progress can be made towards a negotiated solution to meet the international community's concerns about the Iranian nuclear program."

WESTERN "ARROGANCE"

But comments by Abdollah Haj-Sadeghi, a representative of Supreme Leader Ayatollah Ali Khamenei to Iran's elite Islamic Revolutionary Guard Corps (IRGC), indicated continued differences of opinion in Tehran; those may limit the prospect of narrowing the dispute with the West at the talks in Almaty, the first of their kind since negotiators met in Moscow in June.

"They will never want real dialogue and negotiations," Haj-Sadeghi was quoted as saying by the ISNA news agency, addressing religious students in the theological center of Qom.

"Their goal is to inhibit the Islamic revolution. If they can't eliminate the Islamic revolution, they want to weaken and inhibit this revolution," he said. "A revolution with a religious nature cannot reconcile itself with arrogance."

Iranian officials often use the term "arrogant" to denote Western nations. It was not immediately clear whether he was referring to the continuing process of negotiation with the six world powers, known as the P5+1, or to the prospect of direct negotiations with the United States, Iran's main adversary.

Haj-Sadeghi's remarks contrasted with those of Iranian Foreign Minister Ali Akbar Salehi, who said in Berlin on Monday that he was "optimistic" regarding what he saw as a new approach from the United States regarding Iran.

Shashank Joshi, a senior fellow and Middle East specialist at the Royal United Services Institute, said the mixed messages reflected Iran's "fragmented" political system, in which power is divided between elected and unelected bodies.

"Haj-Sadeghi's comments are consistent with a widely held Iranian view: that sanctions are less about the nuclear issue and more about regime change," Joshi said.

"He may therefore have been repeating a standard line rather than responding to Salehi."

Many Iranian leaders may be wary of entering talks which quickly collapse, Joshi said.

"Some of this rhetoric is therefore a way of managing expectations, and pushing responsibility for failure back on to the West," he said.

(Additional reporting by Fredrik Dahl; Writing by Marcus George; Editing by William Maclean and Alastair Macdonald)

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North Korea threatens "stronger" measures than nuclear test

SEOUL (Reuters) - North Korea stepped up its bellicose rhetoric on Tuesday threatening to go beyond carrying out a promised third nuclear test in response to what it believes are "hostile" sanctions imposed after a December rocket launch.

The North frequently employs fiery rhetoric aimed at South Korea and the United States and in 2010 was blamed for sinking a South Korean naval vessel. It also shelled a South Korean island in the same year, killing civilians.

It did not spell out the actions it would take. The North is not capable of staging a military strike on the United States, although South Korea is in range of its artillery and missiles and it can hit Japan with its missiles.

"The DPRK (Democratic Peoples Republic of Korea, or North Korea) has drawn a final conclusion that it will have to take a measure stronger than a nuclear test to cope with the hostile forces nuclear war moves that have become ever more undisguised," the North's KCNA state news agency said.

The United States and South Korea are staging military drills that North Korea says are a rehearsal for an invasion, something both Washington and Seoul deny.

The North successfully launched a long-range rocket in December in violation of U.N. resolutions that banned it from developing missile or nuclear technology after nuclear tests in 2006 and 2009.

The North says that it has the sovereign right to launch rockets for peaceful purposes.

Its widely trailed third nuclear test was announced in response to the sanctions agreed in January, although satellite imagery indicates that the isolated and impoverished state has been readying its nuclear test site for more than a year.

While most experts believe the North will stage a test, the timing is not known. It could come around February 16, the anniversary of former leader Kim Jong-il's birth.

LIMITATIONS

Another unknown is what the North will use as fissile material. In the past it has used its diminishing supply of plutonium stocks, but is believed to have enriched weapons grade uranium that would give it a second path to a nuclear bomb.

U.S. nuclear expert Siegfried Hecker, who visited a North Korean nuclear facility in 2010 believes the North could stage two explosions, one using plutonium to as to perfect its capacity to design a warhead small enough to be mounted on a missile, and a second using highly enriched uranium.

"Such (dual) tests have some technical limitations and are more challenging to conduct, but they have the huge advantage of not incurring additional political cost - in other words, they can get two for the price of one," Hecker wrote in the February 4 issue of Foreign Policy magazine.

Pyongyang's two tests so far have been puny. The yield of the 2006 test is estimated at somewhat less than 1 kiloton (1,000 tons of TNT equivalent) and the second some 2-7 kilotons, compared with say 20 kilotons for a Nagasaki type bomb, Hecker wrote.

North Korea has in the past used the leverage gained from its nuclear and rocket tests to try to restart six-party talks aimed at securing international recognition and aid for the country whose only major diplomatic backer is China.

There are few signs that the United States is willing to talk after the North rebuffed a food aid deal in March 2012 when it launched a long-range rocket after promising not to.

The planned third nuclear test and "stronger" measures come as South Korea prepares to swear in new President Park Geun-hye on February 25. Park had pledged talks and aid if the North gives up its nuclear ambitions.

(Editing by Robert Birsel)

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India gang-rape trial starts with testimony from victim's friend

NEW DELHI (Reuters) - The trial of five men charged with gang-raping and murdering a young woman on a bus in New Delhi opened on Tuesday with closed-door testimony from her friend who appeared at court in a wheelchair, still bearing the scars of injuries from the attack.

The 28-year-old software engineer, who may not be identified, is the prosecution's star witness in a case that has triggered nationwide protests, an intense debate about rampant crime against women in India and tougher anti-rape laws.

The five accused are Vinay Sharma, a gym assistant, Ram Singh, the bus driver, his brother Mukesh Singh, bus cleaner Akshay Kumar Singh and fruit vendor Pawan Kumar. They have pleaded not guilty to charges of rape and murder. A sixth accused is being tried separately as a juvenile.

Police allege the six attacked the 23-year-old trainee physiotherapist and her friend on the bus as the couple returned home from watching a movie on December 16. The woman was repeatedly raped and tortured with a metal bar. The couple were also severely beaten before being thrown onto a road.

The woman died of internal injuries in a Singapore hospital two weeks later.

As the trial got under way, the victim's father made a surprise appearance at a news conference organized by the main opposition Bharatiya Janata Party (BJP) to call for his daughter's attackers to be hanged.

At one stage, the friend, defense lawyers and some policemen moved from the courtroom to a courtyard where the bus on which police say the attack took place was parked.

Journalists saw some of them board the vehicle, which was white with tinted windows and orange curtains. Above the windshield was painted "Praise the Goddess" in Hindi.

The victim's friend was not seen boarding the bus. The friend's father said later it was the second time his son had seen the bus since the attack.

In his statement to police after the assault, the friend said their attackers had asked "where are you going with a girl so late at night?" before launching a furious assault in which he was beaten with a metal rod and his clothes ripped off. While he was being beaten, the woman was repeatedly raped, he said, according to a police charge sheet seen by Reuters.

The prosecution says articles stolen from the couple, including their cellphones, rings and debit cards were found in raids conducted on the homes of the accused. DNA evidence and bloodstained clothes also form part of their case.

Defense lawyers say they will highlight what they say are discrepancies in the account given by the victim's friend.

The five men are being tried in a special fast-track court opposite the shopping mall where the victim and her friend went to watch the film "Life of Pi" before boarding the bus.

About 30 policemen were deployed outside the courtroom on Tuesday as the five accused arrived wearing scarves or handkerchiefs to mask their faces.

(Additional reporting by Suchitra Mohanty, Arup Roychoudhury and Satarupa Bhattacharjya, writing by Ross Colvin; Editing by John Chalmers and Robert Birsel)

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Syrian opposition chief says offers Assad peaceful exit

BEIRUT (Reuters) - Syrian opposition leader Moaz Alkhatib urged Syrian President Bashar al-Assad's government on Monday to start talks for its departure from power and save the country from greater ruin after almost two years of bloodshed.

Seeking to step up pressure on Assad to respond to his offer of talks - which dismayed some in his own opposition coalition, Alkhatib said he would be ready to meet the president's deputy.

"I ask the regime to send Farouq al-Shara - if it accepts the idea - and we can sit with him," he said, referring to Syria's vice president who has implicitly distanced himself from Assad's crackdown on mass unrest that became an armed revolt.

Speaking after meeting senior Russian, U.S. and Iranian officials, Alkhatib said none of them had an answer to the 22-month-old crisis and Syrians must solve it themselves.

"The issue is now in the state's court...to accept negotiations for departure, with fewer losses," the Syrian National Coalition leader told Al Arabiya television.

The moderate Islamist preacher announced last week he was prepared to talk to Assad's representatives. Although he set several conditions, the move broke a taboo on opposition contacts with Damascus and angered many in its ranks who insist on Assad's departure as a precondition for negotiation.

Alkhatib said it was not "treachery" to seek dialogue to end a conflict in which more than 60,000 people have been killed, 700,000 have been driven from their country and millions more are homeless and hungry.

"The regime must take a clear stand (on dialogue) and we say we will extend our hand for the interest of people and to help the regime leave peacefully," he said in separate comments to Al Jazeera television.

Assad announced last month what he said were plans for reconciliation talks to end the violence but - in a speech described by U.N. Syria envoy Lakhdar Brahimi as narrow and uncompromising - he said there would be no dialogue with people he called traitors or "puppets made by the West".

Syria's defense minister said the army had proved it would not be defeated in its confrontation with rebels but declined to say whether it would respond to an Israeli air strike last week.

Security sources said the Israelis bombed a convoy of arms destined for Assad's ally Hezbollah, a sworn enemy of Israel, in neighboring Lebanon. Syria said the attack struck vehicles and buildings at a military research center near Lebanon's border.

Syria's uprising erupted in March 2011 with largely peaceful protests, escalating into a civil war pitting mainly Sunni Muslim rebels against Assad, who is from Syria's Alawite minority. His family has ruled Syria for 42 years.

ANGER AT IRAN

The violence has divided major powers, with Russia and China blocking U.N. Security Council draft resolutions backed by the United States, European Union and Sunni Muslim Gulf Arab states that could have led to U.N. sanctions isolating Assad. Shi'ite Iran has remained his strongest regional supporter.

Alkhatib met Iranian Foreign Minister Ali Akbar Salehi, Russian Foreign Minister Sergei Lavrov and U.S. Vice President Joe Biden at a security conference in Germany at the weekend.

"Iran's stance is unacceptable and I mentioned to the foreign minister that we are very angry with Iran's support for the regime," Alkhatib said.

He said he asked Salehi to pass on his offer of negotiations - based on the acceptance of the Assad government's departure - to Damascus. The two men also discussed the need to prevent Syria's crisis spreading into a regional conflict between Sunni and Shi'ite Muslims, he said.

"We will find a solution, there are many keys. If the regime wants to solve (the crisis), it can take part in it. If it wants to get out and get the people out of this crisis, we will all work together for the interest of the people and the departure of the regime."

One proposal under discussion was the formation of a transitional government, Alkhatib said, without specifying how he thought that could come about. World powers agreed a similar formula seven months ago but then disagreed over whether that could allow Assad to stay on as head of state.

Activists reported clashes between the army and rebel fighters to the east of Damascus on Monday and heavy shelling of rebel-held areas of the central city of Homs. The Jobar neighborhood, on the southwestern edge of Homs, was hit by more than 100 rockets on Monday morning, an opposition activist said.

The Syrian Observatory for Human Rights said at least 90 people were killed by dusk on Monday.

It said 180 people were killed across the country on Sunday, including 114 rebel fighters and soldiers. Sunday's death toll included 28 people killed in the bombardment of a building in the Ansari district of the northern city of Aleppo.

Assad has described the rebels as foreign-backed Islamist terrorists and said a precondition for any solution is that Turkey and Sunni-ruled Gulf Arab states stop funding, sheltering and arming his foes.

The majority of the insurgents are Islamists but those affiliated with al Qaeda are smaller in number, although their influence is growing. For that reason, Western states have been loath to arm the rebels despite their calls for Assad's ouster.

Rebels and activists say that Iran and the Lebanese Shi'ite militant movement Hezbollah have sent fighters to reinforce Assad's army - an accusation that both deny.

ECONOMIC SUPPORT

"The army of Syria is big enough, they do not need fighters from outside," Iran's Salehi said in Berlin on Monday.

"We are giving them economic support, we are sending gasoline, we are sending wheat. We are trying to send electricity to them through Iraq; we have not been successful."

Iranian President Mahmoud Ahmadinejad said later on Monday that Syria's crisis could not be solved by military means and he called for a national accord leading to elections.

"War is not the solution...A government that rules through war - its work will be very difficult. A sectarian war should not be launched in Syria," he told Al Mayadeen television.

"We believe that (deciding) whoever stays or goes is the right of the Syrian people. How can we interfere in that? We must strive to achieve national understanding, and free elections."

Another Iranian official, speaking in Damascus after talks with Assad, said Israel would regret an air strike against Syria last week, without spelling out whether Iran or its ally planned a military response.

Salehi, Russian Foreign Minister Sergei Lavrov and U.S. Vice President Joe Biden all met Alkhatib in Munich at the weekend and portrayed his willingness to talk with Syrian authorities as a major step towards resolving the war.

But Alkhatib is under pressure from other members of the exiled leadership in Cairo for saying he would be willing to talk to Assad. Walid al-Bunni, a member of the Coalition's 12-member politburo, dismissed Alkhatib's meeting with Salehi.

"It was unsuccessful. The Iranians are unprepared to do anything that could help the causes of the Syrian Revolution," Bunni, a former political prisoner, told Reuters from Budapest.

(Additional reporting by Yeganeh Torbati in Dubai and Stephen Brown in Berlin; Editing by Mark Heinrich)

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France arrests suspected Islamists in Mali rebels probe

PARIS (Reuters) - French police arrested four suspected Islamist militants near Paris on Tuesday as part of an investigation into the recruitment of volunteers by al Qaeda insurgents in Mali, Interior Minister Manuel Valls said.

France's intervention in Mali to rid its former colony of Islamist fighters has prompted the authorities to increase security against possible reprisal attacks on its interests in mainland France and abroad.

Anti-terrorism judge Marc Trevidic, who is in charge of the operation, told Reuters last month that France needed more robust local policing, better intelligence sharing and the ability to infiltrate small radical Islamist groups if it hopes to fight new security threats on its soil. [ID:nL5N0AW0LN].

Analysts say the insurgency that seized the north of Mali is paving the way for attacks on France as more French Muslims of African origin were finding a cause in the conflict.

"France is really being singled out at the moment," said Anne Giudicelli, consultant with national security specialists Terrorisc.

"It's being accused of wanting to occupy Muslim territory and that could clearly push some individuals to take action, or encourage others to build up a network," she told Reuters.

A police source said three of the four men arrested on Tuesday were Franco-Congolese and one was Malian.

Valls said the arrests had come after a long investigation into al Qaeda recruitment rings led by Trevidic.

"There is an operation ongoing in the Paris region, conducted by the DCRI (domestic security service), which comes after the arrest of an individual a few months ago on the border between Mali and Niger," he told BFM TV.

That man was a Franco-Congolese social worker named Cedric Lobo, 27, who was arrested in Niamey, the capital of Niger, while trying to reach the historic Malian city of Timbuktu to join al Qaeda in the Islamic Maghreb (AQIM), the source said.

He was subsequently extradited to France, where he was charged with planning attacks and remanded in custody.

"ENEMY FROM WITHIN"

French nationals drawn to violent militant groups had a number of points in common, said Interior minister Valls, who has taken a hard line on law and order and warned France is facing an "enemy from within."

"The profiles are often individuals that have had problems with the law, been involved in drug trafficking, and have sometimes converted to radical Islam either in prison, through the Internet or by travelling overseas," Valls told reporters.

French anti-terrorism judges have opened a number of preliminary investigations in the past year into individuals suspected of links to what they say are Malian terrorist cells.

Valls said police had stopped several individuals trying to travel from France to the Sahel - a vast swathe of semi-arid territory stretching from Senegal in the west to Eritrea in the east - known as a base for traffickers and Islamist militants.

He said a "handful" of French nationals had already joined al Qaeda-linked groups.

"There is no direct threat, but there are threats on the Internet, on social networks, calling on people to wage war, to attack French interests," Valls said.

France has tightened security in public buildings and on public transport, although it has kept its security alert level at red, signifying "probable threats", one down from the scarlet level which means "definite threats".

Highlighting the threat overseas, Paris has raised its travel warning for its citizens across the Muslim world.

The embassy in Tunis on Monday confirmed that a French school in the Tunisian capital had been sprayed with graffiti warning of reprisals after France's intervention in Mali.

(Additional reporting by Nicolas Bertin, John Irish and Vicky Buffery; Writing by Nicholas Vinocur and John Irish; Editing by Jon Boyle)

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