Palestinian unity government will recognize Israel: Abbas

By Noah Browning

RAMALLAH, West Bank (Reuters) - Palestinian President Mahmoud Abbas signaled on Saturday that he remains committed to troubled U.S.-backed peace talks, saying that any unity government agreed with the militant group Hamas would recognize Israel.

Abbas's comments appeared aimed at soothing U.S. concerns about the unity deal he reached on Wednesday with Hamas, an Islamist faction sworn to Israel's destruction and designated by the West as a terrorist organization.

Israel suspended peace negotiations with Abbas after the reconciliation pact, and the United States said it would reconsider annual aid to the Palestinians worth hundreds of millions of dollars.

"The government would be under my command and my policy," Abbas told senior leaders of the Palestine Liberation Organisation (PLO) at his presidential headquarters in the occupied West Bank city of Ramallah.

"Its purview will be what happens domestically. I recognize Israel and it would recognize Israel. I reject violence and terrorism," he said.

The deal between Hamas and Abbas's Fatah party envisions agreement on a government of independent technocrats within five weeks and elections at least six months later.

Hamas's opposition to Israel does not necessarily contradict Abbas's position, as both sides have agreed that the unity government will not include Hamas members but be comprised of technocrats.

But Israeli Prime Minister Benjamin Netanyahu ruled out talks with such a government.

"That's the oldest trick in the book. It's called the front office-back office gambit," he said, in which "shady organizations" put forward "smooth-talking frontmen - the men in suits," Netanyahu said in an interview with MSNBC on Thursday,

"We will not sit and negotiate with a Palestinian government that is backed by Hamas in which Hamas has effective share of power," Netanyahu said.

Hamas on Saturday said it would not change its stance on Israel. "The recognition of Israel by the president of the Palestinian Authority, Mahmoud Abbas, is not new. What is important is that Hamas did not and will never recognize Israel," Hamas spokesman Sami Abu Zuhri told Reuters.

Abbas seeks a Palestinian state in Gaza, the occupied West Bank and East Jerusalem, lands Israel captured in a 1967 war.

Hamas, which seized control of Gaza from Abbas's secular Fatah in a brief 2007 civil war, retains thousands of fighters and an arsenal of rockets. It has fought repeated battles with Israel since it took control of the enclave.

A senior U.S. official said on Thursday that a unity government formed with Hamas could call into question some $500 million in their annual security and budget aid to Abbas.

A future Palestinian government must "unambiguously and explicitly commit to non-violence, recognition of the state of Israel, and acceptance of previous agreements and obligations between the parties," the official told Reuters.

WILLING TO EXTEND TALKS

Hamas and Fatah have in recent years agreed similar unity deals, that were not eventually implemented. Israeli lawmaker Tzachi Hanegbi, a confidant of Netanyahu, said on Saturday that such a scenario was likely and that it left the door open for talks to resume.

"If the agreement falls through then we come back, the Palestinians know what the Israeli-American proposal is (for restarting negotiations), it can be decided on and talks can be renewed," Hanegbi told Channel Two's Meet the Press.

The Israeli-Palestinian peace talks had shown little sign of progress since they began in July and the United States had been struggling in the past few weeks to extend negotiations beyond an original April 29 deadline for a peace accord.

Abbas said he was open to resuming the talks and pushing on beyond the deadline, as long as Israel met long-standing demands to free prisoners and halt settlement building on occupied land.

"How can we restart the talks? There's no obstacle to us restarting the talks but the 30 prisoners need to be released," Abbas said. "We will present our map ... until the map is agreed upon, all settlement activity must cease completely," he said.

But an Israeli official, speaking on condition of anonymity, said Abbas was "recycling previous terms he knows Israel has not accepted, after he had, time and again in the past month, refused to move forward in the negotiations."

Talks veered toward collapse after Israel failed to release a final group of Palestinian prisoners it had promised to free in March, and after Abbas signed several international treaties, which Israel said was a unilateral move towards statehood.

The peace talks resumed in July after a three-year deadlock. The two sides were at odds over Israeli settlement construction in the West Bank and East Jerusalem, activity most countries deem illegal, and over Abbas's refusal to accept a demand by Netanyahu that he recognize Israel as a Jewish state.

(Additional reporting by Nidal al-Mughrabi in Gaza and Maayan Lubell in Jerusalem; Editing by Andrew Heavens and Stephen Powell)

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Ukraine blames Moscow for 'human shield' detentions in east

By Thomas Grove

SLAVIANSK, Ukraine (Reuters) - Pro-Russian separatists in eastern Ukraine offered on Saturday to release eight captive international observers in a prisoner exchange, as Western governments prepared new sanctions against Moscow.

The pro-Western government in Kiev blamed Russia for what it called the kidnapping on Friday of the monitors from the Organisation for Security and Cooperation in Europe (OSCE).

The separatists said they suspected the observers of spying; Ukraine said they were being used as human shields.

Since Ukrainians toppled their pro-Russian president in February, Russia has annexed Ukraine's Crimean peninsula and massed tens of thousands of troops on the country's eastern border. NATO has responded by sending reinforcements to eastern Europe, in the gravest East-West crisis since the Cold War.

Earlier on Saturday the Group of Seven major economies announced they had agreed to impose more sanctions on Russia, which they believe is bent on destabilizing its former Soviet neighbor and possibly grabbing more territory. Diplomats said the United States and the European Union were expected to unveil new punitive action against Russian individuals from Monday.

Russia denies orchestrating a campaign by pro-Moscow militants who have seized control of public buildings across eastern Ukraine. It accuses the Kiev government of whipping up tensions by sending troops to root out the separatists.

The OSCE sent more monitors on Saturday to seek the release of those detained in Slaviansk, a city under the separatists' control. Those being held are from Germany, Sweden, Denmark, Poland and the Czech Republic.

"COINS TO EXCHANGE"

Vyacheslav Ponomaryov, de facto mayor of Slaviansk, told reporters: "They were soldiers on our territory without our permission, of course they are prisoners."

He said the separatists were ready to exchange the captured monitors for fellow rebels now in the custody of the Ukrainian authorities.

"Prisoners have always been coins to exchange during times of war. It's an international practice," he said.

Ukraine's state security service said the OSCE observers - part of a German-led military verification mission deployed since early March at Kiev's request - were being held "in inhuman conditions" and that one needed medical help.

A spokeswoman for the Vienna-based organisation, of which Russia is a member, said the OSCE had been in contact with "all sides" since late on Friday but had had no direct contact with the observers.

The Russian foreign ministry said it was working to resolve the crisis, but blamed Kiev for failing to ensure the OSCE mission's safety in "areas where the authorities do not control the situation and where a military operation against residents of their own country has been unleashed".

Russia's Komsomolskaya Pravda newspaper released a video interview with a man it identified as Ivan Strelkov, a militia leader in Slaviansk, accused by Ukraine's security services of being an employee of Russian intelligence.

He suggested the monitors might have been using their diplomatic status "to carry out reconnaissance of the resistance positions, for the benefit of the Ukrainian army".

It is standard practice for serving military officers to be seconded to OSCE missions.

DIPLOMATIC MOVES

German Foreign Minister Frank-Walter Steinmeier discussed the Ukraine situation with his Russian counterpart Sergei Lavrov by telephone on Saturday "with an accent on possible steps to de-escalate the situation," the Russian ministry said.

Steinmeier said Lavrov had offered his backing, which he welcomed.

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An armored personnel carrier is seen near a barricade around the state security service building in  …

In a separate call with U.S. Secretary of State John Kerry, the Russian minister said Ukraine must halt military operations in the southeast of the country in order to defuse the crisis.

Ukrainian Prime Minister Arseny Yatseniuk said Russian military aircraft entered Ukrainian airspace seven times overnight.

"The only reason is to provoke Ukraine ... and to accuse Ukraine of waging war against Russia," the prime minister told reporters before cutting short a visit to Rome.

Washington deployed 150 paratroopers to Lithuania on Saturday. A total of 600 U.S. troops have now arrived in Poland and the former Soviet Baltic states in a bid to reassure nervous NATO allies.

"As threats emerged, we see who our real friends are," Lithuanian President Dalia Grybauskaite said as she greeted the troops at the Siauliai air base.

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An armored personnel carrier is seen near a barricade around the state security service building in  …

Without mentioning Russia, she said the presence of U.S. troops would "repel those who encroach on stability in Europe and peace in the region".

"The numbers are not important. If just one of our guests is harmed, this would mean an open confrontation, not with Lithuania but with the United States of America."

"DOOR REMAINS OPEN"

U.S. officials said new sanctions targeting "cronies" of President Vladimir Putin could be unveiled as early as Monday unless Russia moved fast to defuse the crisis.

In a joint statement, G7 leaders said Russia had not taken any concrete steps to implement an accord, signed earlier this month in Geneva, intended to rein in illegal armed groups.

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The self-styled mayor of Slaviansk Vyacheslav Ponomaryov attends a news conference in the mayor' …

"Instead, it has continued to escalate tensions by increasingly concerning rhetoric and ongoing threatening military maneuvers on Ukraine's border," it said.

"We have now agreed that we will move swiftly to impose additional sanctions on Russia."

But it added: "We underscore that the door remains open to a diplomatic resolution of this crisis."

Senior EU diplomats will meet on Monday to discuss the next steps and are expected to add 15 more names to a list of Russians subject to asset freezes and a travel ban.

Putin acknowledged for the first time this week that sanctions were causing difficulties for Russia, though he said the impact was not "critical".

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The self-styled mayor of Slaviansk Vyacheslav Ponomaryov attends a news conference in the mayor' …

Standard & Poor's cut Russia's sovereign long-term debt rating on Friday, making it more expensive for the government to borrow money. That forced the central bank to raise its key interest rate to limit a fall in the rouble.

Russian banks have been moving funds out of foreign accounts in anticipation of sanctions.

Russia has threatened to cut off gas to Ukraine, which would have a knock-on effect on customers further west because many pipelines transit the country.

Slovakia said on Saturday it had reached an agreement with Ukraine on opening up limited reverse flow of natural gas from central Europe to Ukraine.

(Additional reporting by Maria Tsvetkova in Donetsk, Ukraine, Pavel Polityuk in Kiev, Nigel Stephenson and Jason Bush in Moscow, James Mackenzie in Rome, and Madeline Chambers and Sabine Siebold in Berlin; Writing by Christian Lowe and Robin Pomeroy; Editing by Mark Trevelyan)

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Activists rally in Cairo against law curbing demonstrations

CAIRO (Reuters) - Hundreds of Egyptian activists demonstrated on Saturday against an anti-protest law, one month before a presidential election which former army chief Abdel Fattah al-Sisi is widely expected to win.

They marched to the presidential palace in Cairo calling for the scrapping of the law passed by Egypt's army-backed interim leadership in November to curb unrest that erupted after the army's overthrow of elected Islamist president Mohamed Mursi.

The law requires anyone planning a demonstration to obtain police permission. Saturday's protesters did not.

A few threw stones at the police, who did not react and there was no serious violence.

"Down, down with army rule," the protesters chanted. Some burned posters of Sisi, who stepped down from his post as the head of the army last month to run for the presidency in the vote on May 26-27.

Western powers and rights groups have voiced concern about the future of freedoms and democracy in Egypt three years after the ousting of Hosni Mubarak, an autocrat who ruled unchallenged for 30 years, in a popular uprising.

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Demonstrators shout slogans against the government and Egypt's former army chief Abdel Fattah al …

But a fierce army-backed crackdown on activists, mainly from Mursi's Muslim Brotherhood group, has narrowed hopes of greater political freedoms under the former army leader's rule.

Thousands of Islamists have been killed or jailed since Mursi was forced out on July 3. Some liberal activists have also been arrested. But Sisi is popular with many Egyptians who see him as capable of restoring security after three years of turmoil.

"We are determined to continue to protest to cancel this law," said protester and spokesman of the liberal al-Dostour party, Khaled Dawoud. "I hope the law gets scrapped so that elections are carried out in suitable conditions."

Three leading activists of the anti-Mubarak revolt were jailed for three years in December for defying the law by failing to apply for permission from the police to protest.

The activists who rallied on Saturday asked for their release. "I call for a presidential pardon for the jailed activists and also 12 other young members from the Dostour party," Dawoud said.

Hundreds of police and army officers have also been killed in violence that spread across the country after Mursi's overthrow and which the state blamed on the Brotherhood.

The Brotherhood, which is Egypt's oldest and most organized political movement and won all five elections held since Mubarak's downfall, denies any links to violence saying it is committed to peaceful activism.

(Reporting by Yasmine Saleh; editing by Andrew Roche)

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South Korean PM resigns over government response to ferry disaster

By Narae Kim

SEOUL (Reuters) - South Korean Prime Minister Chung Hong-won announced his resignation on Sunday over the government response to the ferry disaster, in which it was first announced that everyone had been rescued, focusing attention on poor regulatory controls.

The Sewol ferry sank on a routine trip south from the port of Incheon to the traditional holiday island of Jeju on April 16.

More than 300 people, most of them students and teachers on a field trip from the Danwon High School on the outskirts of Seoul, have died or are missing and presumed dead.

The children on board the Sewol were told to stay put in their cabins, where they waited for further orders. The confirmed death toll on Sunday was 187.

South Korea, Asia's fourth-largest economy and one of its leading manufacturing and export powerhouses, has developed into one of the world's most technically advanced countries, but faces criticism that regulatory controls have not kept pace.

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Participants holding funeral streamers bearing messages for victims of the capsized passenger ship S …

As part of the investigation, prosecutors raided two shipping safety watchdogs and a coastguard office. They have also raided two vessel service centers, which act as maritime traffic control.

Chung's resignation has to be approved by President Park Geun-hye, who has the most power in government.

"Keeping my post too great a burden on the administration," a somber Chung said in a brief announcement. "...On behalf of the government, I apologize for many problems from the prevention of the accident to the early handling of the disaster.

"There are too many irregularities and malpractices in parts of society that have been with us too long and I hope those are corrected so that accidents like this will not happen again."

Chung was booed and someone threw a water bottle at him when he visited grieving parents the day after the disaster. President Park was also booed by some relatives when she visited a gym where families of the missing were staying.

Tempers have frayed over the slow pace of the recovery and frequent changes in information provided by the government.

The Gyeonggi Provincial Office of Education sent text messages to parents that "All Danwon High School students are rescued" in the hours after the disaster, media reported.

(Writing by Nick Macfie; Editing by Michael Perry)

• Disasters & Accidents
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North Korea says army must develop to be able to beat U.S.

By Nick Macfie

SEOUL (Reuters) - North Korean leader Kim Jong Un urged the army to develop to ensure it wins any confrontation with the United States, the reclusive country's news agency said on Sunday, a day after U.S. President Barack Obama warned the North of its military might.

Kim led a meeting of the Central Military Commission and "set forth important tasks for further developing the Korean People's Army and ways to do so", KCNA news agency said.

"He stressed the need to enhance the function and role of the political organs of the army if it is to preserve the proud history and tradition of being the army of the party, win one victory after another in the confrontation with the U.S. and creditably perform the mission as a shock force and standard-bearer in building a thriving nation."

Obama said on Saturday on a visit to Seoul, where the U.S. army has a large presence, that the United States did not use its military might to "impose things" on others, but that it would use that might if necessary to defend South Korea from any attack by the reclusive North.

North and South Korea are still technically at war after their 1950-53 civil conflict ended in a mere truce.

The impoverished North, which routinely threatens the United States and the South with destruction, warned last month it would not rule out a "new form" of atomic test after the U.N. Security Council condemned Pyongyang's launch of a mid-range ballistic missile into the sea east of the Korean peninsula.

North Korea is already subject to U.N. sanctions over its previous three atomic tests.

Recent satellite data shows continued work at the nuclear test site in North Korea, although experts analyzing the data say that preparations do not appear to have progressed far enough for an imminent test.

"We don't use our military might to impose these things on others, but we will not hesitate to use our military might to defend our allies and our way of life," Obama told U.S. forces at the Yongsan garrison.

"So like all nations on Earth, North Korea and its people have a choice. They can choose to continue down a lonely road of isolation, or they can choose to join the rest of the world and seek a future of greater opportunity, and greater security, and greater respect - a future that already exists for the citizens on the southern end of the Korean peninsula."

(Editing by Michael Perry)

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Western intelligence suggests Syria can still produce chemical arms

By Louis Charbonneau

UNITED NATIONS (Reuters) - Syria maintains an ability to deploy chemical weapons, diplomats say, citing intelligence from Britain, France and the United States that could strengthen allegations Syria's military recently used chlorine gas in its bloody civil war.

The comments reflect a growing conviction among Western capitals that President Bashar al-Assad has failed to come clean about Syria's chemical weapons program despite his promises to end it, and they insist the United States and its allies will resist calls by Assad to shut down a special international chemical disarmament mission set up to deal with Syria.

Syria denies it maintains the capacity to deploy chemical weapons, calling the allegation a U.S. and European attempt to use their "childish" policies to blackmail Assad's government.

But in a tacit acknowledgement of the original declaration's incompleteness, Syria earlier this month submitted a more specific list of its chemical weapons to the international disarmament mission after discrepancies were reported by inspectors on the ground, officials said.

Under threat of U.S. airstrikes, Assad agreed with the United States and Russia in September to dispose of his chemical weapons - an arsenal that Damascus had never previously formally acknowledged - after hundreds of people were killed in a sarin gas attack in August on the outskirts of the capital.

Washington and its Western allies said it was Assad's forces who unleashed the sarin attack, the world's worst chemical attack in a quarter-century. The government blamed the rebel side in Syria's civil war, which is now in its fourth year.

The verification of Syria's declaration on its poison gas arsenal and its destruction has been overseen by a joint team of the United Nations and the Organization for the Prohibition of Chemical Weapons (OPCW), the global chemical arms watchdog.

Diplomats say Western governments have long suspected Syria did not declare all aspects of its chemical arms program. But the envoys say they have kept silent on the issue to avoid giving Assad an excuse to curtail cooperation with the U.N.-OPCW mission and slow down an already delayed timetable for shipping toxins out of the country.

With more than 90 percent of Syria's declared chemical stockpiles now out of the country, Western officials have started to break their silence.

"We are convinced, and we have some intelligence showing, that they have not declared everything," a senior Western diplomat told Reuters, adding that the intelligence had come from Britain, France and the United States.

When asked how much of its program Syria has kept hidden, the diplomat said: "It's substantial." He offered no details.

AMBIGUITIES AND DISCREPANCIES

Syrian U.N. Ambassador Bashar Ja'afari dismissed the charge.

"These countries aren't really reliable and their policies towards the implementation of the agreement between the Syrian government and the OPCW aren't principled but rather childish," he said in a mobile-phone text message to Reuters.

"If they have some evidence they must share it with the OPCW rather than pretending to have secret evidence!"

Ja'afari said the three Western powers' goal was to needlessly extend the U.N.-OPCW mission by "keeping the 'chemical file' open indefinitely so that they can keep exerting pressure and blackmailing the Syrian government."

Another Western official, who also spoke on condition of anonymity, told Reuters that while there was not 100 percent certainty Syria maintains chemical weapons, the three Western powers agreed that there is a "high level of probability" that Syria deliberately under-reported the full extent of its chemical arms-related stockpiles.

He cited examples of large batch of a sarin precursor chemical going missing in Syria and Damascus' unverified claims to have destroyed most of its mustard gas stocks before the U.N.-OPCW mission arrived in the country and other anomalies.

In interviews over the last two months with Western officials with access to intelligence about Syria, Reuters learned that topics of concern include deadly nerve agent ricin, mustard gas, precursor chemicals used to make sarin, and, more recently, the use of chlorine gas in Syria.

U.S. and British officials have also spoken of ambiguities and problems with the Syrian chemical weapons declaration. U.S. officials warned as early as November that intelligence suggested Syria may try to hide some toxins.

Suspicions that its declaration was incomplete deepened when Syria did not report to the OPCW having sarin, which was used in the outskirts of Damascus on August 21, or the type of rockets used to deliver an estimated 300 liters of the toxin.

The senior Western diplomat said Britain, France and the United States had provided information to the OPCW months ago, including on specific undeclared chemical weapons sites. He added that the three powers had also provided Assad's staunch ally Russia with the intelligence but "they have not reacted."

The OPCW had no immediate comment when queried. A Russian U.N. mission spokesman said he had no comment, though Moscow reiterated on Friday its position that claims about the Syrian government using chemicals weapons were false.

(Additional reporting by Anthony Deutsch in The Hague, Michelle Nichols in New York, Mark Hosenball and Phil Stewart in Washington; Edited by Jason Szep and Lisa Shumaker)

• Politics & Government
• Unrest, Conflicts & War
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• OPCW
• chemical weapons
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'Pause' perhaps needed in Israeli-Palestinian talks: Obama

By Matt Spetalnick

SEOUL (Reuters) - U.S. President Barack Obama said on Friday a "pause" might be needed in U.S.-brokered peace talks between Israel and the Palestinians, suggesting leaders on both sides lacked the will to make the necessary compromises.

Israel on Thursday suspended participation in negotiations with the Palestinians in response to President Mahmoud Abbas's unexpected unity pact with the rival Islamist Hamas group, which Israel and the United States consider a terrorist organization.

Speaking at a news conference in Seoul, Obama called the Palestinian move "unhelpful" and said it was one of a series of choices the two sides had made in recent weeks that had hurt the chances of reaching a peace deal.

"There may come a point at which there just needs to be a pause and both sides need to look at the alternatives," Obama said, offering a grim assessment of nine months of direct talks that were overseen by Washington but ultimately led nowhere.

While Obama insisted he was not ready to abandon his quest for Middle East peace, he said: "What we haven't seen is, frankly, the kind of political will to actually make tough decisions, and that's been true on both sides."

There was no immediate reaction from leaders in Israel or the Palestinian Territories, who have blamed each other for the latest in a string of failed peace efforts.

Obama was careful not to apportion blame and left open the hope that one day the respective camps would overcome their mutual distrust and walk through what he said was the only door available to them to end their generations-old conflict.

"We will continue to encourage them to walk through that door. Do I expect that they will walk through that door next week, next month, or even in the course of the next six months? No," he said.

CRITICISM

U.S. Secretary of State John Kerry has invested considerable time and political capital in the talks, visiting the Middle East more than a dozen times in a year to try to narrow the yawning divide that separates Israeli and Palestinians.

The stalemate represents a blow to him at a time when the United States, Israel's closest ally, has faced fierce criticism from friend and foe alike over its handling of Middle East problems such as Syria's civil war, nuclear talks with Iran and Egypt's upheavals.

Obama acknowledged on Friday that achieving an Israeli-Palestinian peace deal - a goal that has eluded many previous U.S. presidents - had always been a "long shot" for his administration, which failed in a first-term peace initiative.

But he said it was in U.S. interests to end a dispute that was "combustible".

The negotiations struggled almost as soon as they started last July, with the Palestinians enraged by a wave of new Jewish settlement building on land they envisage as part of a future state, and Kerry had been struggling to convince the bitter foes to extend the talks beyond an original April 29 deadline.

Israeli Prime Minister Benjamin Netanyahu said on Thursday he would not sanction discussions with Palestinian President Mahmoud Abbas at a time when he was looking to form a unity government with militant group Hamas, which governs Gaza.

Previous efforts to end the seven-year schism have imploded and there was no indication that Abbas would succeed this time around, meaning that although the direct peace talks are in a coma, they are not necessarily dead.

The Palestinians argue that just as Netanyahu has parties in his coalition that are fiercely opposed to the creation of an independent Palestine, so Abbas can forge a pact with a group that does not recognize Israel's right to exist.

(Reporting by Matt Spetalnick and Mark Felsenthal; Writing by Crispian Balmer; Editing by Angus MacSwan)

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28 killed in attack on Shi'ite political rally in Iraq

By Raheem Salman

BAGHDAD (Reuters) - A series of explosions killed 28 people and wounded more than 40 at a Shi'ite political organization's rally in Iraq on Friday, police and medical sources said.

The militant group Asaib Ahl Haq (League of the Righteous) was presenting its candidates for elections on April 30 at the rally in eastern Baghdad. Three bombs exploded in succession as people were leaving, Reuters reporters at the scene said.

A roadside bomb went off near the main gate, followed by a suicide car bomb after a few minutes and then a final explosion.

Al Qaeda offshoot the Islamic State of Iraq and the Levant (ISIL) claimed responsibility for the attack in a statement posted on the Internet.

The group said it had carried out the bombings in response to "murder, torture and displacement" of Sunnis by Shi'ite militias which "massacred children and women".

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An explosion is seen during a car bomb attack at a Shi'ite political organisation's rally in …

The attack came as tensions ran high in Iraq in the runup to a national election on April 30 and as the Iraqi security forces are locked in a four-month battle with ISIL in western Anbar province.

It appeared to be the work of ISIL aimed at baiting the group to strike Sunni neighborhoods or communities in hopes of provoking a full-fledged civil war.

SPEECH AGAINST SUNNI RADICALS

Asaib's main leader Sheik Qais Khazaali had just delivered a speech accusing some politicians of aiding terrorism and vowed his movement was ready for any action by ISIL.

"To all ISIL ... we are ready. We are prepared," he said. "We are the defenders of this country. You will never reach us."

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An explosion is seen during a car bomb attack at a Shi'ite political organisation's rally in …

He added: "If ISIL is the sickness, were are the medicine."

As people started to leave the stadium, the first bomb exploded. Grey smoke rose in the air and people ran or scrambled for cover. The a white mini-van raced to the stadium's main gate and detonated, unleashing a massive ball of fire.

Army and police shot in the air and a final explosion shook the ground. Asaib members commandeered cars to rush the injured to hospital. A wounded man limped away, stained in blood, while people hunted for missing friends or relatives.

Asaib, which has formed its own party, al-Sadiqoon (the truth seekers), is accused by some Sunnis and Shiites of carrying out killings and driving families from their homes.

Khazaali denies the allegations but says his movement defends Iraq against terrorism. Some of Asaib's members are in Syria defending the shrine of Sayyida Zainab in Damascus.

Pictures of its slain fighters from Syria can be seen around Baghdad and Shi'ite cities across the south.

Khazaali was an aide to Shiite cleric Muqtada Sadr and led his own faction of fighters, who broke away from Sadr's Mahdi Army militia. At the height of sectarian violence in 2006 and 2007, some of the worst attacks on Sunnis were blamed on Asaib.

The group also carried out attacks on the U.S. military.

(Reporting by Raheem Salman; Editing by Ned Parker and Andrew Roche)

• Unrest, Conflicts & War
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Mediators held in Ukraine as U.S. readies new Russia sanctions

By Thomas Grove and Arshad Mohammed

SLAVIANSK, Ukraine/WASHINGTON (Reuters) - The United States and the European Union are expected on Monday to impose new sanctions on Russian individuals, sources said on Friday, as the Ukraine crisis escalated with armed pro-Russia separatists seizing a bus carrying international mediators.

The Pentagon said Russian aircraft breached Ukraine's airspace several times over the past 24 hours, but did not offer more details. Pentagon spokesman Colonel Steve Warren called on Russia to "take immediate steps to de-escalate the situation."

The separatist self-declared mayor of the east Ukraine city of Slaviansk told Reuters the mediators were being held because they were believed to have a spy amongst them from the pro-Western government in Kiev.

"People who come here as observers bringing with them a real spy: it's not appropriate," Vyacheslav Ponomaryov said in front of a security service building occupied by separatists where the Ukrainian government said the observers were being detained.

The fresh U.S. and EU sanctions come in response to Russia's alleged efforts to destabilize eastern Ukraine, said sources familiar with the matter, speaking on condition of anonymity.

The EU is expected to name 15 previously unidentified individuals to be placed under sanctions and would focus on those it thinks are responsible for the unrest in Ukraine, the sources said.

The United States is expected to impose sanctions on entities and individuals, including "cronies" of Russian President Vladimir Putin, they said.

The sources said the one thing that might prevent the EU and the United States from moving ahead with the sanctions on Monday would be a sudden reversal of what they say is Russian-sponsored separatist movements in eastern Ukraine.

"You will find a European list much more connected to actions on the ground, and an American list more focused on cronies and entities," said one of the sources, adding that some EU nations remain concerned about placing sanctions on Putin associates.

DIPLOMATIC CHANNELS

German Defence Minister Ursula von der Leyen said 13 observers from the Organization for Security and Cooperation in Europe (OSCE) had been seized, including three members of the German armed forces, a German translator and a Danish national.

"It is critical that we use all diplomatic channels to free this team immediately and unhurt," von der Leyen said, adding that officials were trying to establish the captors' demands.

Russia denies allegations it is directing the separatists, who have taken control of large parts of eastern Ukraine over the past three weeks.

But the White House said U.S. President Barack Obama and European allies agreed on Friday that Russia had escalated tension in the region, where the rebels have declared an independent "People's Republic of Donetsk".

Britain and Germany agreed further sanctions were in order, building on targeted U.S. and European sanctions against Russian and Ukrainian individuals following Russia's annexation of Crimea.

"We are working with our international partners to make sure that when we do it, we do it in an effective way," U.S. Treasury Secretary Jack Lew said.

Putin has scoffed at the sanctions so far imposed, which have been limited to travel bans and overseas assets freezes on individuals.

The standoff has led to heavy capital flight from Russia, prompting credit rating agency Standard & Poor's to cut the country's ratings on Friday. That forced the central bank to raise its key interest rate to reverse a drop in the ruble.

Ukraine sent in troops to try to dislodge the separatists for the first time on Thursday, killing up to five rebels around Slaviansk in what it said was a response to the kidnapping and torture of a politician found dead on Saturday.

Russia's foreign minister, Sergei Lavrov, accused authorities in Kiev of waging "war on their own people".

"This is a bloody crime, and those who pushed the army to do that will pay, I am sure, and will face justice," Lavrov said.

The Kremlin says it has the right to defend Russian speakers anywhere if they are under threat and has deployed extra troops on the border with Ukraine, which NATO says number up to 40,000.

They began military exercises on Thursday and Ukraine said they had approached to within 1 km (0.6 mile) of its border and that it would treat any incursion as an invasion.

Ukrainian special forces launched a second phase of their operation on Friday by mounting a full blockade of Slaviansk, the rebels' military stronghold, a presidential official said.

One of its military helicopters was hit by rocket fire and exploded while on the ground at an airport near the city, the Defence Ministry said.

'SPEEDY REACTION'

Pro-Western leaders in Kiev, who took power in February after Moscow-ally President Viktor Yanukovich fled following mass protests against him, say they fear Russia will try to take over eastern Ukraine.

Russian troops seized Ukraine's Crimean peninsula on the Black Sea soon after Yanukovich left for Russia in February. Moscow denies interfering in eastern Ukraine, as it did in Crimea before admitting its forces had gone in.

The White House statement came after Obama pressed four European leaders on the need for more robust action against Russia. Europe is reluctant to impose tough sanctions due to its reliance on Russian gas and trade ties with Moscow.

"The president noted that the United States is prepared to impose targeted sanctions to respond to Russia's latest actions," it said. "The leaders agreed to work closely together, and through the G7 and European Union, to coordinate additional steps to impose costs on Russia."

Britain agreed the current sanctions would need to be extended given what it said was Russia's refusal to support an international peace agreement that it signed up to last week under which all sides agreed to work to disarm illegal groups.

German Chancellor Angela Merkel said the leaders would have to react. "Because of the lack of progress we will have to contemplate further sanctions," she said before the call.

France said sanctions had been discussed and the leaders had called for a "speedy reaction" to the crisis from leading industrial nations. Italy said the leaders had agreed on the situation but gave no details.

"The leaders underscored that Russia could still choose a peaceful resolution to the crisis, including by implementing the Geneva accord," the White House statement said.

Lavrov said Moscow was committed to implementing the Geneva agreement but accused Washington of distorting it with "one-sided demands". However, Russia's Defence Ministry said it was ready for "unbiased and constructive" talks with the United States to stabilize the situation.

U.S. Secretary of State John Kerry said Russia was using propaganda to hide what it was trying to do in eastern Ukraine - destabilize the region and undermine next month's Ukrainian presidential elections - and decried its "threatening movement" of troops up to Ukraine's border.

Ukraine's Prime Minister Arseny Yatseniuk said Russia wanted to start World War Three by occupying the country and creating a conflict that would spread to the rest of Europe.

(Additional reporting by Gabriela Baczynska in Moscow, Roberta Rampton in Washington, Maria Tsvetkova in Donetsk, Alexei Anishchuk, Lidia Kelly and Oksana Kobzeva in Moscow, Alastair Macdonald and Pavel Polityuk in Kiev, Alexandria Sage in Paris, James Mackenzie in Rome and Erik Kirschbaum in Berlin; writing by Will Waterman and Philippa Fletcher; Editing by Mark Trevelyan and Mohammad Zargham)

• Politics & Government
• Foreign Policy
• Russia
• eastern Ukraine
• European Union
• Ukraine

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Japan, U.S. tiptoe into new phase of Pacific trade talks

By Krista Hughes

WASHINGTON (Reuters) - The United States and Japan are edging into a new phase of trade negotiations after U.S. President Barack Obama and Japanese Prime Minister Shinzo Abe's summit, people with knowledge of talks to create one of the world's biggest trade pacts said.

Talks on the Trans-Pacific Partnership, a 12-nation bloc which would span 40 percent of the world economy and extend from Asia to Latin America, have been deadlocked as the United States and Japan stared off over farm and auto exports.

Although Obama and Abe did not announce an end to the stalemate at Thursday's meeting in Tokyo, a joint statement issued shortly before Obama left on Friday said the two countries identified a "path forward" on key issues, a contrast to the "gaps" highlighted after previous talks.

Briefing reporters on the president's plane from Japan, a senior U.S. official said negotiators set the parameters for agreement on Japan's sensitive sugar, beef, pork, rice, dairy and wheat sectors, involving which trade barriers to eliminate, which to reduce, and over which time period.

"There are these parameters, and there are trade-offs among parameters. The deeper the cut in the tariff, the longer time it may take to get there," he said.

A U.S. congressional aide briefed on the negotiations said there was momentum heading into TPP negotiations in Vietnam in May, where concrete trade-offs could be made.

"That's the first time we have seen the Japanese moving in our direction," said the aide, who declined to be identified because of the sensitive nature of the discussions.

"We were on a path of gridlock and now there seems to be a path forward, if you're a trade negotiator you've got to be excited about that."

Trade experts said the administration comments pointed to a long phase-out period for tariffs Japan was prepared to move on such as beef, which it agreed to cut in a deal with Australia weeks earlier, while allowing continued protection for sectors such as rice.

"That's something that the United States can do, because U.S. negotiators are not under extreme political pressure to get a comprehensive reform on rice," said Peterson Institute for International Economics trade analyst Jeffrey Schott.

Officials from other TPP countries noted U.S. recognition of the role market access played in persuading other TPP partners to sign up to common rules on issues such as intellectual property, important to the United States and Japan.

For big agricultural exporters such as Canada, New Zealand and Australia, access to Japan's markets might offset doubts about the intellectual property rules.

"Once it's clear that there is going to be a U.S.-Japan deal that is perceived to be a good deal for everybody ... there will be decisions made," the aide said. "There will be trade-offs, trade-offs not just in the market access talks but trade-offs within the rules package as well, across the entire agreement."

The joint statement also called on other trading partners to take steps needed to conclude the agreement, making clear the United States and Japan do not want to bear the burden alone.

"It's going to take all 12 countries, not two, in order for TPP to cross the finish line," said Alston & Bird policy adviser Eric Shimp, a former U.S. Trade Representative negotiator.

But Japan would likely have to go into more detail about its concessions to prompt Canada to open up its dairy and poultry markets.

"It's hard for me to see Canada offering more market access, or showing its hand, before Japan does. The sequence is fairly clear," said McDermott Will & Emery partner Jay Eizenstat, also a former USTR negotiator.

(Reporting by Krista Hughes; Editing by Mohammad Zargham)

• Politics & Government
• Foreign Policy
• Barack Obama

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