Venezuela's Chavez returns from Cuba after treatment

CARACAS (Reuters) - Venezuela's President Hugo Chavez made a theatrical return home on Friday after medical treatment in Cuba, walking and joking in a first public appearance for three weeks that quashed rumors he may have been at death's door.

"So, where's the party?" an ebullient and robust-looking Chavez said after flying in before dawn to the surprise and delight of supporters.

"I'm happy and enthused to be back again," he told beaming ministers after walking unaided down the steps from his plane at the international airport outside Caracas.

The 58-year-old socialist leader has had three cancer operations in Cuba since mid-2011 and returned to Havana ten days ago to receive "hyperbaric oxygenation" - a treatment normally used to alleviate bone decay from radiation therapy.

Speculation had been rife that he may have suffered a recurrence of the disease, and one local journalist had said he was confined to a wheelchair.

Earlier this year, Chavez declared himself "completely cured" and went on to win re-election comfortably in October.

Amid a barrage of rumors fed by the opposition, officials had maintained that his latest visit to Cuba was just a scheduled follow-up to the radiation therapy he underwent in the first half of 2012.

Supporters celebrated the return of a man who has dominated the South American OPEC nation since he first won election in 1998. He wore a blue and white tracksuit and flew with relatives and aides including Vice President Nicolas Maduro.

"YEEESSSS!!!!," tweeted Eva Golinger, an American-Venezuelan lawyer close to the Chavez government.

"Chavez is back and has shown up all the rumor-mongers, necrophiliacs, gossips and ill-thinkers ... Welcome comandante."

Chavez looked relatively well, moving with ease and chatting for 15 minutes on the runway, although he remains puffy-faced as he has been since the radiation treatment.

QUESTIONS LINGER, BONDS FALL

Chavez's return gives him a week to campaign for Venezuela's December 16 state elections, where his ruling Socialist Party is hoping to use the momentum of the presidential victory to win back some opposition-held governorships.

The opposition, however, is hoping that discontent with grassroots issues like crime, power-cuts and cronyism will enable it to at least hold the seven states it controls out of Venezuela's 23.

Speculation over Chavez's health is unlikely to end, given the scant details given by the government.

Doctors say hyperbaric oxygenation is a treatment normally given in different sessions over several months, meaning he could return to Cuba again soon.

They also say nobody can declare themselves cured of cancer until a couple of years have passed without recurrence.

The president had dearly wanted to attend a Mercosur summit in Brazil on Friday, to celebrate Venezuela joining the regional trade bloc this year, so his absence from that maintained a question mark over just how well he is.

News of Chavez's trip to Cuba had prompted a Venezuelan bond rally given Wall Street and Western investors' preference for a more business-friendly government in Caracas.

But in early trading on Friday, following news of his return, Venezuela's global bonds fell 1.81 pct in price, according to returns tallied by the J.P. Morgan Emerging Markets Bond Index Plus (EMBI+).

Bonds had risen 6.2 percent so far this month to Thursday.

Opponents criticize Chavez for secrecy over his health and preferring Cuban doctors to Venezuelans.

"His whole absence has been a black hole of misinformation," opposition legislator Tomas Guanipa told local media.

"Any president should give account to his people, it is an obligation to give health details. When you are transparent and responsible, and recognize you are there to serve the people not boss them, the logical thing is to say what is going on."

Chavez has chosen to be treated in Havana due to his friendship with Cuba's past and present leaders Fidel and Raul Castro, plus the discretion he is guaranteed thanks to the Communist government's strict controls on information.

Cuba's Communist Party newspaper published photos showing Raul Castro bidding farewell to Chavez at Havana airport. Chavez said he had met Fidel Castro during his stay.

(Additional reporting by Jeff Franks in Havana, Mario Naranjo, Andrew Cawthorne and Marianna Parraga in Caracas, and Walker Simon in New York; Writing by Andrew Cawthorne; Editing by Daniel Wallis and David Storey)

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HRW demands Israel justify Gaza strike that killed 12 civilians

JERUSALEM (Reuters) - Human Rights Watch urged Israel on Friday to provide a full account of its air strike on a house in the Gaza Strip that killed 12 civilians last month, saying the action appeared to have been illegal.

The November 18 attack on the three-storey home of the Dalu family was the bloodiest of the eight days of fighting between the Jewish state and Gaza's Islamist Hamas-led armed factions, in which around 170 Palestinians and six Israelis died.

New York-based Human Rights Watch (HRW) said Israel should have anticipated the civilian toll and censured it for not proving it was justified in targeting the home.

Ten members of the Dalu family were killed, along with two neighbors.

"Attacks in which the expected civilian loss exceeds the anticipated military gain are serious violations of the laws of war," HRW said in a report.

Israel launched its November assault on the Gaza Strip in what it described as a defensive effort to disrupt Palestinian rocket capabilities.

"The Israeli claim that the attack on the Dalu home was justified is unsupported by the facts," said HRW special adviser Fred Abrahams, who conducted research in Gaza.

"The onus is on Israel to explain why it bombed a home full of civilians killing 12 people. Anyone who violated the law should be appropriately punished."

At the time of the attack, the Israeli military said it had struck the commander of Hamas's rocket-launching operations, naming him as Yihia Abayah.

The chief military spokesman later said the air force had "tried" to hit Abayah and the outcome of that attempt was unclear. He acknowledged civilians had been hurt.

TARGET

On November 28, a mid-level military spokeswoman said one of the Dalu family members was a Hamas "terror operative" - signaling that Israel considered him a legitimate target - though she declined to give a name.

Neither would she say if the military knew there had been civilians in the building.

Among the dead was Mohamed Jamal Dalu, a low-ranking police officer for the Hamas government, according to Palestinian sources. They said he was not known to have taken part in fighting against Israel.

The Israeli chief military spokesman's office said on Friday it would respond to the HRW report in full in the coming days.

It issued an interim statement saying Israel had taken "numerous measures" to avoid causing innocent casualties, and accused Palestinian guerrillas of putting civilians at risk by fighting among them.

The military said the Dalu residence had been identified by Israeli intelligence "as the hideout of a senior Hamas militant who played an important role in the organization's rocket-launching infrastructure". It did not name the militant.

(Additional reporting by Maaayan Lubell and Nidal al-Mughrabi; Writing by Dan Williams; Editing by Sophie Hares)

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Egypt struggle seen costing Mursi, even if he wins

CAIRO (Reuters) - The crisis unleashed by President Mohamed Mursi's bid to wrap up Egypt's transition on his own terms has eroded his nation's faith in their nascent democracy and will complicate the already unenviable task of government.

His effort to drive through a constitution against the wishes of major sections of society, including a Christian minority, has damaged prospects for building consensus needed to tackle challenges ahead, such as fixing a broken economy.

Having promised to be a president for all, Mursi stands accused of putting the interests of his group, the Muslim Brotherhood, ahead of others who say their aspirations are not reflected in the draft to be put to a December 15 referendum.

On the other side, suspicions harbored by Islamists towards their secular-minded opponents have only deepened as a result of the turmoil ignited by Mursi's effort to fast-track the final stage of the transition from Hosni Mubarak's rule.

With the more extreme among them opposed to the very notion of democracy, the Islamists say their rivals are not respecting the rules of the game that put them in the driving seat by winning free and fair elections.

People anxious to see Egypt recover from two years of turbulence fear bad blood could persist and squash hopes for cooperation needed to help Mursi rule smoothly and deliver much-needed reforms.

"If they succeed in the referendum, they will see that as a step forward, but not without cost," said a Western diplomat.

Though Mursi won international praise for mediating a truce in Gaza, the violence on his own streets worries the West and particularly the United States, which has given Cairo billions of dollars in military and other aid since Egypt made peace with Israel in 1979. U.S. President Barack Obama told Mursi on Thursday of his "deep concern" about casualties during protests.

A victim of the polarization could be the Brotherhood's plans to forge electoral alliances with liberals in forthcoming parliamentary polls. The head of the Brotherhood's Freedom and Justice Party told Reuters this week he saw such alliances as preferable to an ideological tie-up with other Islamists.

The divisions are now playing out in the streets. Seven people were killed and hundreds wounded this week in clashes between Islamists and their rivals. A call by Mursi for dialogue was rebuffed by activists who are to protest again on Friday.

"We said that this state of polarization, if it was not dealt with properly, would reach this point, and it has," said Ayman Al-Sayyad, who quit his post as a Mursi adviser on Wednesday following an eruption of violence.

"This was the scene that we were trying to avoid," he added in an interview with al-Hayat television.

The inclusive image Mursi had tried to build around his administration was one of the first victims of the crisis that mushroomed following a November 22 decree that expanded his powers and protected his decisions from judicial review.

RESIGNATIONS

A Christian and a woman were among the first to resign from his staff, as surprised by the decree as most Egyptians. Despite an early bout of violence, Mursi showed no sign of wavering and appeared to brush off his critics.

"I see things more than they do," he told Time.

With speculation swirling around how he took the decision, Egyptians long suspicious of the Brotherhood have concluded Mursi is running the country at the group's command.

In response, the Islamists complain that many of Mursi's attempts at outreach were rebuffed early on. Their view of the opposition has grown dimmer through the crisis. Brotherhood members have started to dismiss opponents as "feloul", meaning "remnants" - a pejorative implying loyalty to Mubarak.

"The really unfortunate side effect of the last two weeks is the political atmosphere has become really toxic. I fear that could endure long past the current crisis," said Elijah Zarwan, a fellow with the European Council on Foreign Relations.

"The next government is going to have to move very quickly to address many problems and it will need cooperation. In the current atmosphere, it is hard to imagine others cooperating."

Such cooperation will be at a premium for introducing policies aimed at reining in a crushing budget deficit and staving off a balance of payments crisis. Egypt's economy has lost $70 billion to $80 billion of economic output since Mubarak was ousted, in one economist's estimate.

Top of the economic to-do list are measures to cut back on fuel subsidies - one of the biggest drains on state finances. Tweaks to such support are bound to be unpopular in a nation where both rich and poor have grown used to cheap petrol.

"He has inherited an economy that is weak and needs serious surgery, so he is going to have to make controversial decisions over the next year or so," said Simon Kitchen, strategist at EFG-Hermes, an Egyptian investment bank.

"Ideally you want to do that in an environment where you have some sort of political consensus," he said.

"THEY BURNED THEIR BRIDGES"

Some subsidy reform and other steps to cut waste are part of a program agreed in principle with the International Monetary Fund for $4.8 billion loan designed to support the budget.

The IMF board meets on December 19 to discuss approval of the loan, which would be seen by investors as a seal of approval for the government's reform program.

Besides the economy, Mursi needs wider backing to tackle other problems including a judiciary which his opponents agree needs overhaul. But even when he sacked the unpopular, Mubarak-era prosecutor general, Mursi was criticized for showing an autocratic streak in the way he went about it.

In the new system of government outlined in the draft constitution, Egypt's next parliament will have a say over the shape of government. A parliamentary election would go ahead some two months later if the constitution is approved in the referendum.

With that in mind, the Freedom and Justice Party is already eyeing alliances to fight the parliamentary election.

FJP leader Saad al-Katatni said in an interview his preference was for an alliance with liberals, not the hardline Islamists whose backing has helped Mursi through the crisis. "Our preferred option is that the alliance not be ideological so that we don't have a split in the nation," he said.

The Brotherhood had kept the nascent hardline Salafi parties at arm's length as they emerged after Mubarak's political demise. That trend has gradually been reversed as the Brotherhood has looked to fellow Islamists for support.

"They burned their bridges with the secular camp and relied heavily on the Salafi camp. We don't feel that is where they naturally want to be right now," said the Western diplomat, speaking on condition of anonymity.

Sentiment from liberal parties suggests the Brotherhood will struggle to convince liberals that it is a trustworthy partner.

"I don't think the man realizes the degree of rebellion and rage the people have," said Ahmed Said, head of the liberal Free Egyptians Party, referring to Mursi. "The country is totally divided and polarized. You have two nations now."

(Writing by Tom Perry; Editing by Peter Graff)

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Strong quake hits off Japan near Fukushima

TOKYO (Reuters) - A strong quake centered off northeastern Japan shook buildings as far away as Tokyo on Friday and triggered a one-meter tsunami in an area devastated by last year's Fukushima disaster, but there were no reports of deaths or serious damage.

The quake had a preliminary magnitude of 7.3, the U.S. Geological Survey said, and thousands of coastal residents were ordered to evacuate to higher ground, but the tsunami warning was lifted two hours after the tremor struck.

The March 2011 earthquake and following tsunami killed nearly 20,000 people and triggered the world's worst nuclear crisis in 25 years when the Fukushima-Daiichi nuclear plant was destroyed, leaking radiation into the sea and air.

Workers at the plant were ordered to move to safety after Friday's quake. Tokyo Electric Power Co, the operator of the Fukushima nuclear plant, reported no irregularities at its nuclear plants.

All but two of Japan's 50 nuclear reactors have been idled since the Fukushima disaster as the government reviews safety.

The quake measured a "lower 5" in Miyagi prefecture on Japan's scale of one to seven, meaning there might be some damage to roads and houses that are less quake resistant.

The scale measures the amount of shaking and in that sense gives a better idea of possible damage than the magnitude. The quake registered a 4 in Tokyo

The one-meter tsunami hit at Ishinomaki, in Miyagi, at the centre of the devastation from the March 2011 disaster. All Miyagi trains halted operations and Sendai airport, which was flooded by the tsunami last year, closed its runway.

Five people in the prefecture were slightly injured.

"I was in the centre of the city the very moment the earthquake struck. I immediately jumped into the car and started running away towards the mountains. I'm still hiding inside the car," said Ishinomaki resident Chikako Iwai.

"...I have the radio on and they say the cars are still stuck in the traffic. I'm planning to stay here for the next couple of hours."

There are vast areas of Ishinomaki that still have not been cleaned up since last year's tsunami. Many houses lie in ruins, full of rubble. Workers by the shore still sort through thousands of cars that were swamped and destroyed. The cars are piled up and being taken apart for parts and scrap.

A QUAKE EVERY FIVE MINUTES

Narita airport outside Tokyo was back in action after a brief closure for safety checks. There were small tsunamis, measuring in the centimeters, elsewhere near the epicenter.

Last year's quake, which measured 9.0, triggered fuel-rod meltdowns at Fukushima, causing radiation leakage, contamination of food and water and mass evacuations. Much of the area is still deserted.

The government declared in December that the disaster was under control.

"Citizens are now escaping to designated evacuation centers and moving to places on higher ground," office worker Naoki Ara said in Soma, 30 km (18 miles) from the Fukushima-Daiichi plant.

Prime Minister Yoshihiko Noda cancelled campaigning in Tokyo ahead of a December 16 election and was on his way back to his office, but there was no immediate plan to hold a special cabinet meeting.

Public spending on quake-proofing buildings is a big election issue.

Japanese were posting photos of their TV screens with tsunami warnings on Facebook, asking each other whether they're safe, confirming their whereabouts.

"It shook for a long time here in Tokyo, are you guys all right?" posted Eriko Hamada, enquiring about the safety of her friends.

Phone lines were overloaded and it was difficult to contact residents of Miyagi.

"Owing to the recent earthquake, phone lines are very busy, please try again later," the operator said.

The yen rose against the dollar and the euro on the news, triggering some safe-haven inflows into the Japanese currency.

Japan is one of the world's most earthquake-prone countries, with a tremor occurring at least every five minutes.

Located in the "Ring of Fire" arc of volcanoes and oceanic trenches partly encircling the Pacific Basin, the country accounts for about 20 percent of the world's earthquakes of magnitude 6.0 or greater.

Tokyo, with a population of 12 million, sits on the junction of four tectonic plates: the Eurasian, North American, Philippine and Pacific. The sudden bending or breaking of any plate can trigger an earthquake.

(Additional reporting by Tomasz Janowski, Leika Kihara and Aaron Sheldrick; Writing by Nick Macfie; Editing by Ken Wills)

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Russian PM defends tough laws, stands behind Putin

MOSCOW (Reuters) - Russian Prime Minister Dmitry Medvedev on Friday defended new laws which opponents say will be used to stifle dissent, underlining his allegiance to President Vladimir Putin after talk of a rift.

In a live interview with five Russian television stations, Medvedev appeared determined to show he is in step with Putin and to silence rumors that the more hawkish president could sack him as premier.

Asked about new legislation which forces lobby groups funded from abroad to register as "foreign agents", Medvedev dismissed concerns that the term was deliberately pejorative because it evokes the Cold war.

"What's wrong with the word 'agent'?" Medvedev said. "Agent means 'representative', and that's all ... Anything else is just a coincidence."

He also dismissed suggestions that the passage of laws in the last six months broadening the definition of treason, raising fines for protesters and increasing fines for defamation was part of a trend signaling a clampdown on the opposition.

"I do not take it as a trend. I do not agree these laws are reactionary," he said.

Medvedev, 47, stayed on message throughout the 90-minute interview, broadcast across the nation five days before Putin delivers his annual state of the nation address.

His remarks revealed none of the differences that have occasionally emerged between Putin and Medvedev, notably over the Libya conflict in 2011 and, to an extent, over the trial of the Pussy Riot punk band for its anti-Putin protest this year.

Putin and Medvedev worked together in St. Petersburg in the 1990s, and it was the former KGB spy who ushered his more liberal protégé into the presidency in 2008 because the constitution bars three successive terms.

But there has been talk of a rift since Putin rebuked the government in September over its fiscal plans and the conduct of cabinet ministers, and Medvedev criticized the president's methods of dealing with business leaders.

FALL IN STANDING

Medvedev's standing has declined sharply since he and Putin announced in September last year that Putin planned to return to the presidency, ending speculation that Medvedev would stay on.

A think tank, the Institute of Globalisation Problems, said in a report this week that Medvedev was likely to survive as premier only until March or April because of battles behind the scenes between rival interest groups.

Other political experts say Putin is more likely to keep Medvedev in place at least until there is an economic slowdown or another crisis that requires a high-profile scapegoat.

Medvedev ignored the rumors in Friday's interview, during which he was asked about drunk driving and a possible ban on smoking in public places, and denied the world would end on December 21 under a New Age prophecy.

He said he might have another tilt at the presidency one day if the Russian people want it. But the reaction on social media was discouraging, especially after footage appeared on YouTube of the journalists asking him after the interview if he believed in Father Frost (Father Christmas) and what presents he wanted.

"It's sad when the former president and current prime minister of your country is simply a pathetic person," wrote Yekaterina Kudinova on Twitter.

Another, identified as Borman, wrote: "Journalists, stop mocking the baby ... It's time to sleep."

(Reporting by Timothy Heritage; Editing by Stephen Powell)

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Hamas leader ends long exile, visits Gaza Strip

GAZA (Reuters) - Hamas leader Khaled Meshaal ended decades of exile on Friday with a triumphal first ever visit to the Gaza Strip that underscored the Islamist group's growing confidence following its latest conflict with Israel.

After passing through the Egyptian border crossing, Meshaal knelt and touched the ground with his forehead, offering up a prayer of thanks. He was then greeted in the warm December sun by dozens of Palestinian officials from an array of factions.

Thousands of supporters lined the streets, which were decked in green Hamas flags, as he drove through the coastal enclave, boisterous resistance songs blasting from loudspeakers and gun shots ringing out in welcome as his motorcade reached the city.

Meshaal will spend barely 48 hours in the territory and attend a mass rally on Saturday that has been billed as both a commemoration of the 25th anniversary of the founding of Hamas and a "victory" celebration following the November fighting.

Israel rejects Hamas's assertion that it won the eight-day conflagration, which left 170 Palestinians and six Israelis dead and was ended by an Egyptian-brokered ceasefire.

Meshaal said his arrival in Gaza was like a rebirth that followed on from his natural birth in the nearby West Bank in 1956 and a second that was his narrow escape in 1997 from an Israeli assassination squad wielding a poisoned needle.

"I pray to God that my fourth birth will come the day we liberate Palestine," he said, clearly moved by his reception, with uniformed police breaking ranks to try and kiss his hand.

"Today is Gaza. Tomorrow will be Ramallah and after that Jerusalem then Haifa and Jaffa," he said. Ramallah is in the West Bank, while the latter cities, which have large Arab populations, are in modern-day Israel.

He later visited the home of Hamas founder Sheikh Ahmed Yassin, who was assassinated by Israel in 2004, as well as that of Ahmed Al-Jaabari, the group's military commander, who was killed in a similar air strike last month.

Hamas denied seeking Israeli guarantees that Meshaal would not be targeted in Gaza and massive security was laid on, with gun-toting, black-masked guards from the Hamas military wing patrolling the streets in open-topped trucks and motorbikes.

"This is the most beautiful day in my life," said 27-year-old policeman, Mohammed Abed. "I kissed him on the head."

Meshaal, 56, had been widely understood not to have set foot in the Palestinian territories since he left his native West Bank with his family aged 11. However in his speech he indicated he had returned there for a visit as a teenager 37 years ago.

UNITY PLEDGE

Hamas has ruled the tiny Gaza Strip and its 1.7 million population since 2007, when it won a brief civil war with its secular rivals Fatah, which still controls the occupied West Bank. Israel had pulled troops and settlers from Gaza in 2005.

The two main Palestinian factions have tried, often with little enthusiasm, to patch up their differences. Meshaal vowed to push for unity which is longed for by ordinary Palestinians.

"This is a promise from the leadership of Hamas. We will press ahead with reconciliation to end divisions and to stand united against the Zionist occupation," he said on Friday.

The Palestinian movement's founding charter calls for the destruction of Israel but its leaders have at times indicated a willingness to negotiate a prolonged truce in return for a withdrawal to the lines established ahead of the 1967 war, when Israel seized East Jerusalem, Gaza and the West Bank.

Hamas continues to say that it will not recognize the Jewish state officially, and it is viewed as a terrorist group by Israel, the United States and most Western governments.

By contrast, the Western-backed Palestinian President Mahmoud Abbas says he wants a permanent peace deal based on 1967 lines. Sidelined during the Gaza fighting, Abbas regained the spotlight last week when he secured de-facto statehood recognition for the Palestinians at the U.N. General Assembly.

Meshaal ran Hamas from exile in Syria from 2004 until January this year when he quit Damascus because of Iranian-backed President Bashar al-Assad's war against Sunni Muslim rebels, whose religion and politics are closer to those of the Palestinians. He now divides his time between Qatar and Cairo.

His abrupt departure from Syria initially weakened his position within Hamas: ties with Damascus and Tehran had made him important, but with those links damaged or broken, rivals based within Gaza had started to assert their authority.

However, he regained the initiative in last month's rocket war with Israel, working closely with Egypt to secure the truce, and although he says he plans to step down soon, few in the Gaza Strip expect him to follow through on that pledge.

In a show of unity, Hamas's Gaza prime minister, Ismail Haniyeh, stuck close to Meshaal's side throughout the day.

Israeli media have barely mentioned the exile leader's return. Israeli officials say their week of round-the-clock bombing raids in November had not only killed military chief Jaabari, but also severely depleted Hamas's weapons stockpile.

"They can dance in the streets as much as they like, but their leaders know what damage was inflicted," said a senior Israeli official in Jerusalem, who declined to be named.

REGIONAL SHIFTS

However, the conflict clearly boosted Hamas's political standing in the region, winning it the support of Sunni regional powers, such as Qatar, Turkey and Egypt. All dispatched senior delegations to Gaza in a rare and public display of solidarity.

The Arab Spring revolts of the last two years have brought friends of Hamas to power across the Arab world, above all Egypt's new President Mohamed Mursi, whose long-banned Muslim Brotherhood is spiritual mentor to Hamas.

Meshaal is viewed as more moderate than the local Gaza hierarchy and some Israeli analysts believe that for all the tough rhetoric expected in the coming days, he might well be someone with whom Israel can one day do business.

"From Israel's point of view, Khaled Meshaal now plays a more positive role," said Shlomo Brom, a senior research fellow at the Institute for National Security Studies (INSS), a research institute based just up the coast in Tel Aviv.

The last Palestinian leader to make a triumphal entrance to Gaza was the late Yasser Arafat, who took the same route back from exile in 1994. The mood then was very different, however. Arafat rode in on a wave of optimism after signing an accord with Israel that promised a final peace within five years.

There is no such expectation of a lasting resolution any time soon, with a growing number of Israeli and Palestinian analysts writing the obituary of that two-state solution.

(Writing by Crispian Balmer; Editing by Alastair Macdonald)

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Rebels circle Damascus airport; Russia, U.S. downbeat

BEIRUT (Reuters) - Rebels fighting to topple Syrian President Bashar al-Assad declared Damascus International Airport a battle zone on Friday, while Moscow and Washington both sounded glum about the prospects of a diplomatic push to end the conflict.

Fighting around the capital city has intensified over the past week, and Western officials have begun speaking about faster change on the ground in a 20-month-old conflict that has killed 40,000 people.

But Russia and the United States, the superpowers that have backed the opposing sides in the conflict, both played down the chance of a diplomatic breakthrough after talks aimed at resolving their differences.

"I don't think anyone believes that there was some great breakthrough," U.S. Secretary of State Hillary Clinton said of a meeting with Russia's Foreign Minister Sergei Lavrov and international mediator Lakhdar Brahimi.

"No one should have any illusions about how hard this remains. But all of us, with any influence, need to be engaged with Brahimi for a concerted, sincere push."

Lavrov said the sides had agreed to send officials to another meeting with Brahimi, but also sounded a skeptical note.

"I would not make optimistic predictions ... It remains to be seen what will come out of this," he added, noting that Brahimi knows the chance of success is "far from 100 percent".

Washington and its NATO allies want to see Assad removed from power. Moscow has blocked action against him at the U.N. Security Council, and while outsiders repeatedly point to signs of Russia losing patience with him, its stance has not changed.

The past week has brought a war previously fought mainly in the provinces and other cities to the threshold of the capital.

Cutting access to the airport 20 km (12 miles) from the city center would be a symbolic blow. The rebels acknowledge the airport itself is still in army hands, but say they are blockading it from most sides.

"The rebel brigades who have been putting the airport under siege decided yesterday that the airport is a military zone," said Nabil al-Amir, a spokesman for the rebels' Damascus Military Council.

"Civilians who approach it now do so at their own risk," he said. Fighters had "waited two weeks for the airport to be emptied of most civilians and airlines" before declaring it a target, he added.

He did not say what they would do if aircraft tried to land. Foreign airlines have suspended all flights to Damascus since fighting approached the airport in the past week, although some Syrian Air flights have used the airport in recent days.

Syria says the army is driving rebels back from positions in the suburbs and outskirts of Damascus where they have tried to concentrate their offensive. Accounts of rebels and the government are impossible to verify on the ground.

Although Western opponents of Assad believe events are tipping against him, they also acknowledge that the war is still far from over.

"It's very clear to me that the regime's forces are being ground down," U.S. ambassador to Syria Robert Ford was quoted as saying by CNN.

"That said, the regime's protection units continue to maintain some cohesion, and they still have some fight left in them, even though they are losing. I expect there will be substantial fighting in the days ahead," said Ford, who was withdrawn from the country in October last year.

Rami Abdelrahman, of the Syrian Observatory for Human Rights, which has tracked the fighting since it began in March 2011, said: "I think it's unrealistic to expect that the battle is in its last stages right now.

"The big advances are only in the media. But the situation is certainly not good, for anyone."

RUSSIA SAYS PATRIOTS COULD DRAG NATO INTO WAR

NATO decided this week to send U.S., German and Dutch batteries of air-defense missiles to the Turkish border, putting hundreds of American and European NATO troops close to the frontier with Syria for the first time in the crisis.

Russia's ambassador to NATO said the move risked dragging the alliance into the conflict.

"This is not a threat to us, but this is an indication that NATO is moving toward engagement, and that's it," Alexander Grushko said. "We see a threat of further involvement of NATO in the Syrian situation as a result of some provocation or some incidents on the border, if they take place.

The Dutch on Friday say they would send two Patriot batteries with up to 360 personnel. Germany approved its mission on Thursday.

The United States and its NATO allies have issued coordinated warnings in recent days to Assad not to use chemical weapons, prompting Syria to accuse Western countries of conjuring the threat to justify a military intervention.

"I think there is no question that we remain very concerned, very concerned that as the opposition advances, in particular on Damascus, that the regime might well consider the use of chemical weapons," U.S. Defense Secretary Leon Panetta said on Thursday.

Syria has not signed an international chemical weapons treaty banning poison gas, but has repeatedly said that it would never use such weapons on its own people.

United Nations Secretary General Ban Ki-moon said: "We have no confirmed reports on this matter. However, if it is the case, then it will be an outrageous crime in the name of humanity."

The United States is in no hurry to get into another Middle Eastern war. Nevertheless, if it appeared that chemical weapons were about to be used by Assad, or seized by an extreme Islamist faction among the rebels, it could be driven to take action.

But some analysts say there is no long-range plan.

"Western powers have been too focused just on their endgame, which was to see Assad go," says Hayat Alvi, associate professor of national security studies at the US Naval War College. "There is no substantive plan about any other contingencies, risks, and post-Assad scenarios."

(Additional reporting by David Brunnstrom in Belfast, Peter Apps in London, Steve Gutterman in Moscow and Adrian Croft in London; Writing by Douglas Hamilton; Editing by Peter Graff)

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Berlusconi party says will not push Italy into chaos

ROME (Reuters) - Silvio Berlusconi's centre-right People of Freedom party pledged on Friday not to trigger a disorderly crisis that could alarm financial markets as Italy began to look forward to an election in the first few months of next year.

People of Freedom (PDL) secretary Angelino Alfano told parliament that the party's withdrawal of support from Prime Minister Mario Monti in two confidence votes on Thursday had shown its disapproval without bringing down the government.

"Yesterday we did not give a vote of no confidence because we consider the experience of the Monti government has come to an end but we don't want to send the institutions and the country into chaos," Alfano said.

Pier Luigi Bersani, head of the centre-left Democratic Party, which is leading in opinion polls, said his party would continue to support Monti.

Following several weeks of relative calm, which saw market confidence improve and Rome's borrowing costs come down steadily, investors have once again been ruffled by Italy's political troubles, although reaction has not been extreme.

The spread or difference between yields on Italian 10-year bonds and German counterparts that are considered less risky widened to 326 basis points on Friday although it is still well off a peak of 553 points at the height of the crisis last year.

"At this stage, early elections would make almost no difference for financial markets," Barclays Capital analysts wrote, adding that the emergence of a stable government after the election was likely to be key to reassuring investors.

After changing his mind repeatedly in recent weeks, Berlusconi indicated on Wednesday that he was likely to seek a fifth term as prime minister and lead his divided party in the election now expected to be held by early March.

The PDL is expected to allow budget measures in the so-called Stability Law to pass when it comes before parliament for final approval some time before Christmas, ensuring that deficit reduction goals are maintained and the budget is approved.

Former PDL minister Altero Matteoli said party officials were now talking about a possible election date on March 10 but there was no official confirmation.

NO CHANGE ON ELECTORAL LAW

Alfano met President Giorgio Napolitano on Friday to discuss the crisis but he made no comment on the substance of the talks.

The decision to break with Monti's technocrat government, which the PDL has backed in parliament since it was appointed last year, was widely interpreted as an attempt by Berlusconi to hold the party together in the face of falling approval ratings.

It also effectively ends hopes of a change to the current much-criticized electoral law and means next year's vote is likely to be held under a system which analysts say could allow the PDL to retain significant strength in the upper house.

Berlusconi is expected to lead the party in next year's election campaign on a platform attacking Monti's austerity policies after he accused the former European Commissioner on Wednesday of dragging Italy "to the brink of a precipice".

Napolitano, who is responsible for calling an election which must take place no later than April, said on Thursday that he did not intend to allow Monti's term to end in chaos and would ensure the stability of Italy's institutions.

In a sign that tensions had calmed after drama in parliament on Thursday, Monti left Rome for Milan to attend an opera.

Two opinion polls published on Friday showed that the Democratic Party had increased its lead over political rivals.

(Writing by James Mackenzie; Editing by Stephen Powell)

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As tanks face off, Iraqi rivals see political gains

TUZ KHURMATO, Iraq (Reuters) - A hundred miles from Baghdad, tanks are facing off across a frontline defined not by an international border but by ethnic enmity, fueled by past bloodshed and future oil wealth, that risks tearing Iraq apart.

The sun-blazoned flag of Kurdistan flies from the turrets of Soviet-built armored vehicles, seized a decade ago from Saddam Hussein's army, their barrels now aimed at the unseen forces of Iraq's national government on the far side of Tuz Khurmato, a town beyond the formal boundary of the Kurds' autonomous region.

For three weeks, Kurdish "peshmerga" and soldiers of Baghdad's Arab army, have been reinforcing positions in the "disputed territories", a long, ill-defined swathe of northern Iraq, rich in oil and communal complexity, where the federal government and Kurdish leaders based in Arbil vie for control.

For all the flag-waving and warnings of war from Iraqi Prime Minister Nuri al-Maliki and Kurdistan President Masoud Barzani, few believe either will risk an all-out conflict whose outcome would be uncertain and would disrupt both a flourishing economy in Kurdistan and oil exports that bring Baghdad vital revenues.

Rather, both are gaining from this, the second such flare-up in the year since U.S. troops quit Iraq, to consolidate their respective support among Arabs and Kurds for upcoming elections.

Maliki spoke this week of "unpredictable risks" as Kurdish troops brought up more tanks and artillery close to the oilfield city of Kirkuk: "If it erupts ... it will be a painful, shameful ethnic conflict," he said, warning of "dangerous dimensions".

Kurds accuse the Iraqi premier of "opening a Pandora's box".

U.S. forces, whose no-fly zone first gave the Kurds de facto autonomy from Saddam in 1991, helped keep a peace between them and the Arabs after occupying Iraq in 2003; now, Washington's diplomats have had to work behind the scenes to calm tempers, most recently following a shootout on November 16 between Iraqi and Kurdish forces in Tuz Khurmato in which a bystander was killed.

Politicians, diplomats and analysts detect an unwillingness on either side to go beyond verbal skirmishing or the sort of occasional, tit-for-tat halts in transfer payments or oil pipelines that have long marked their fractious relationship.

"Both Baghdad and Arbil seem not to be willing to push this," said Gareth Stansfield, a former U.N. adviser on the dispute who teaches Middle East politics at Exeter University.

At the same time, neither side is in a hurry to pull back.

"There is definitely a sense this might not cause outright war, but flashpoints all over in all sorts of places," one diplomat said. "This is probably going to be quite prolonged, because there isn't much appetite to settle it."

Stansfield added: "Every episode like this makes the relationship between Arbil and Baghdad, Barzani and Maliki, even worse - which is, of course, a problem for the future."

SHIFTING ALLIANCES

Ten years after the U.S. invasion toppled Saddam in the name of democracy, the stand-off demonstrates Iraq's failure to forge consensus among Maliki's Shi'ite Muslim majority, Sunni Arabs who were dominant under Saddam, and the Kurds, some 15 percent of the population, concentrated in the northern mountains.

Most violence has been seen in a sectarian war among Arabs; Maliki has had support from the Kurds, who have not pressed for full statehood, aware of their landlocked isolation and the hostility of neighbors wary of their own Kurdish minorities.

Yet Iraqi Kurdish expansion beyond a regional frontier noted in the 2005 constitution - and new Kurdish contracts to sell oil to foreign firms without reference to Baghdad - may push Iraq's divided Arabs to close ranks; united Arab hostility may in turn also help stifle friction among competing Kurdish movements.

"The sectarian card is not working anymore and the nationalist card is the joker now," said a Shi'ite member of the Iraqi parliament who has himself previously allied with Sunnis, in describing a coming realignment of forces among the Arabs.

One Sunni tribal leader in Salahaddin province, which includes Tuz Khurmato but also Tikrit, Saddam's home town, said former army officers he knew had not only removed portraits of the executed dictator from their walls recently but even put up pictures of Maliki. That would once have been unimaginable among Sunni Arabs who have long seen the premier as a pawn of Shi'ite Iran. It says much about new perceptions of a Kurdish threat.

For his part, Maliki, despite pursuing Iraq's fugitive Sunni vice president over sectarian attacks, is courting Sunni allies after seeing some Kurdish lawmakers who helped keep him in power after the 2010 election support a parliamentary motion to unseat him. Provincial elections in the new year may offer clues to potential partners before the March 2014 parliamentary ballot.

"Maliki is waiting for a strong Sunni ally, to get a parliamentary majority and then to form the majority government next time," one ally of the prime minister said privately.

SHADOW OF HALABJA

For the Kurds, Maliki's move to set up a new command structure for those national security forces based on their doorstep - known as the Tigris Operations Command - violates the constitution and reveals a drive by Baghdad to thwart their hopes of annexing Kirkuk and other areas where, since 2003, they have been expanding their own military and political presence.

Accusing the head of the new command centre of a role in Saddam's genocidal assaults on the Kurds in the 1980s - a charge he denies - Kurdish leaders have lined up together against Maliki after falling out among themselves earlier this year over tactics in the parliament and over the civil war in Syria.

Barzani, leader of the Kurdistan Democratic Party (KDP), and Jalal Talabani of the Patriotic Union of Kurdistan (PUK), who is Iraq's president in the power-sharing national administration, have buried differences to demand Maliki disband the new command whose troops are now confronting the peshmerga at Tuz Khurmato.

"Maliki is opening a Pandora's box," said one senior Kurdish politician, who spoke anonymously due to the sensitivity of the current situation. "Kirkuk for us is everything, not a game for political gains or any other kind. It is about justice to our cause and undoing what Saddam and other Iraqi regimes did."

In a joint statement on November 22, the Kurdish parties invoked memories of the poison gas massacre of Kurds at Halabja in 1988 to warn that Baghdad might repeat such "chauvinist attacks".

"Whenever an external threat exists against Kurdish issues, we are unified," said Omar Badi of the Islamic Union of Kurdistan, which sits in the regional assembly in opposition to the governing coalition of KDP and PUK. "Whoever confronts the threat from outside will win the votes of the Kurdish people."

A Shi'ite politician in Baghdad said one significant change had been in the role of Talabani, who had used his position as head of state to mediate between Maliki and Barzani - against whom Talabani fought a civil war in Kurdistan in the 1990s.

"Talabani has lost his strategic Shi'ite alliances and his position as a friend and father of all factions," the Shi'ite political figure said, speaking privately. "He can no longer play the role of intermediary between the rivals."

STALEMATE

For now, that phoney war continues, around Tuz Khurmato, to the southeast of it in Diyala province, in the northwest around the big city of Mosul and, most intensely, around Kirkuk.

For years, it has been a conflict fought in near silence, with intimidation and only sporadic violence used to drive out rival groups and alter the ethnic mix of local communities that are supposed, one day, to vote in a referendum on whether parts of the disputed territories should join the Kurdistan region.

Kurds are keen to reverse Saddam's policy of resettling the area with Arabs, including many Shi'ites from the south. Arabs accuse Kurds of rewriting history. Other substantial groups, notably Turkish-speaking Turkmen, are also pressing claims.

Stalemate over holding the plebiscite that the constitution stated should have been held by 2007, has left Baghdad and Arbil increasingly arguing along the barrels of their tanks.

(Editing by Patrick Markey and Alastair Macdonald)

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Riots mar Hillary Clinton's Belfast return

BELFAST (Reuters) - U.S. Secretary of State Hillary Clinton on Friday condemned a wave of street violence during a trip in Northern Ireland, saying it showed the peace process she has long supported in the British province was not yet complete.

Clinton arrived in Northern Ireland, following Dublin talks on Syria with Russian Foreign Minister Sergei Lavrov, in a week that has seen three riots and the arrest of four suspected militant nationalists after the discovery of a bomb in a car.

"There can be no place in Northern Ireland for any violence, any of the remnants of the past need to be quickly, unequivocally condemned," Clinton told a news conference she held with pro-British First Minister Peter Robinson and his deputy, former Irish Republican Army leader Martin McGuinness.

She said violence was from "a small minority of people who try to stir up passions or emotions. It is unacceptable and must be repudiated by everyone".

Clinton travelled to Northern Ireland several times in the mid-1990s while her husband helped broker the 1998 Good Friday peace accord, his hands-on approach widely recognized as crucial at moments when the agreement looked like crumbling.

At least 3,600 people were killed during the previous three decades as Catholic nationalists seeking union with Ireland fought British security forces and mainly Protestant Loyalists determined to remain part of the United Kingdom.

The 1998 peace has mostly held, although militant nationalists have stepped up attacks in recent years and community relations remain fragile with riots erupting every few months at flash points in the city.

NIGHT OF VIOLENCE

The latest riot erupted on Thursday night when a policeman was injured after protesters hurled bricks and bottles to vent their anger against nationalist councilors who voted to remove the British flag atop Belfast City Hall after 100 years.

Smaller protests took place across the province on Friday.

Police on Friday said four men were arrested after a home-made armor-piercing rocket, of a type often used in Iraq and Afghanistan, was recovered from a car in a Republican area of Londonderry overnight.

A member of the British parliament for the non-sectarian centrist Alliance party, Naomi Long, fled her house in Belfast overnight after receiving a death threat over her party's support of the removal of the flag from City Hall.

"Peace does need sacrifice, compromise and vigilance day after day. We have seen this week that the work is not yet complete," said Clinton, on one of her last trips as secretary of state.

Last month, militant nationalists shot dead a prison officer in just the fifth fatal attack on a member of the security establishment since 1998. Signs at the airport where Clinton landed on Friday said "Threat Level 'Severe'".

As first lady, Clinton supported pro-peace women's groups in Northern Ireland and visited people wounded in the 1998 Omagh bombing, the deadliest attack in three decades of violence commonly known as the "Troubles".

On Friday she met some women she has remained friends from those groups as well as Sinn Fein Leader Gerry Adams and former Democratic Unionist Leader Ian Paisley, two bitter rivals who symbolized the Troubles for many.

PRESIDENTIAL BOON

The visit was a reminder of the huge popularity of the Clintons among Catholics in Ireland, an appeal one columnist has described as "Kennedy-esque".

Her husband's work in the province helped win over the Irish-American vote during his 1996 re-election campaign and the family name could prove a potential asset in attracting the Irish-American vote if Hillary decided to run for the U.S. presidency in 2016.

"There are no truer friends to this island, to this peace process or even our prosperity," McGuinness said of the Clintons.

Clinton on Thursday told journalists in Dublin she was "too focused on what I'm doing" to think about a run for the presidency in 2016 and declined to comment on U.S. newspaper reports her husband may be appointed as Washington's next ambassador to the Republic of Ireland.

During her visit, she emphasized the need to revitalize the economy in Northern Ireland, where house prices have fallen by over 50 percent since 2007.

The troubles led to decades of under-investment and the province remains heavily dependent on a grant from London. U.S. investment in the province is a tiny fraction of that in the Republic of Ireland.

"Both her and her husband, they have been there for us down the years," said David Adair, 59, who was walking near the province's parliament when Clinton met local leaders.

"But given the state our economy is in right now it would be nice if she could go home and rustle up a few thousand more jobs."

(Writing by Conor Humphries; Additional reporting by David Brunnstrom; Editing by Jon Hemming)

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