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* Hostages said to be bound, under tight guard
* Militants warn against attempts to free hostages
* Algerian government rules out negotiating
By Lamine Chikhi and Bate Felix
ALGIERS/BAMAKO, Jan 17 (Reuters) - Islamist fighters haveopened an international front in Mali's civil war by takingdozens of Western hostages at a gas plant in the Algerian desertjust as French troops launched an offensive against rebels inneighbouring Mali.
Nearly 24 hours after gunmen stormed the natural gas pumpingsite and workers' housing before dawn on Wednesday, little wascertain beyond a claim by a group calling itself the "Battalionof Blood" that it was holding 41 foreign nationals, includingAmericans, Japanese and Europeans, at Tigantourine, deep in theSahara.
British Foreign Secretary William Hague confirmed one Britonhad been killed and "a number" of others were being heldhostage. Algerian media said an Algerian was killed in theassault. Another local report said a Frenchman had died.
"This is a dangerous and rapidly developing situation,"Hague told reporters in Sydney on Thursday, adding Britain'sPrime Minister David Cameron had spoken with the AlgerianPresident Abdelaziz Bouteflika.
"We have sent a rapid deployment team from our foreignoffice in order to reinforce our embassy and consulate staffthere. The safety of those involved and their co-workers is ourabsolutely priority and we will work around the clock to resolvethis crisis."
One thing is clear: as a headline-grabbing counterpunch tothis week's French buildup in Mali, it presents French PresidentFrancois Hollande with a daunting dilemma and spreads falloutfrom Mali's war against loosely allied bands of alQaeda-inspired rebels far beyond Africa, challenging Washingtonand Europe.
A French businessman with employees at the site said theforeigners were bound and under tight guard, while local staff,numbering 150 or more, were held apart and had more freedom.
Led by an Algerian veteran of guerrilla wars in Afghanistan,the group demanded France halt its week-old intervention inMali, an operation endorsed by Western and African allies whofear that al Qaeda, flush with men and arms from the defeatedforces of Libya's Muammar Gaddafi, is building a haven in thedesert.
Hollande, who won wide praise for ordering air strikes andsending troops to the former French colony, said little inresponse. In office for only eight months, he has warned of along, hard struggle in Mali and now faces a risk of attacks onmore French and other Western targets in Africa and beyond.
The Algerian government ruled out negotiating and the UnitedStates and other Western governments condemned what they calleda terrorist attack on a facility, now shut down, that produces10 percent of Algeria's gas, much of which is pumped to Europe.
The militants, communicating through established contactswith media in neighbouring Mauritania, said they had dozens ofmen at the base, near the town of In Amenas close to the Libyanborder, and that they were armed with mortars and anti-aircraftmissiles.
They said they had repelled a raid by Algerian forces afterdark on Wednesday. There was no government comment on that. Algerian officials said earlier about 20 gunmen were involved.
LIVES AT RISK
The militants issued no explicit threat but made clear thehostages' lives were at risk: "We hold the Algerian governmentand the French government and the countries of the hostagesfully responsible if our demands are not met and it is up tothem to stop the brutal aggression against our people in Mali,"read one statement carried by Mauritanian media.
The group also said its fighters had rigged explosivesaround the site and any attempt to free the hostages would leadto a "tragic end." The large numbers of gunmen and hostagesinvolved pose serious problems for any rescue operation.
Smaller hostage-taking incidents have been common in theSahara and financial gain plays a part in the actions of groupswhose members mingle extremist religious aims with traditionalsmuggling and other pursuits in the lawless, borderless region.
Algerian Interior Minister Daho Ould Kablia said the raidwas led by Mokhtar Belmokhtar, who fought Soviet forces inAfghanistan in the 1980s and recently set up his own group inthe Sahara after falling out with other local al Qaeda leaders.
A holy warrior-cum-smuggler dubbed "The Uncatchable" byFrench intelligence and "Mister Marlboro" by some locals for hisillicit cigarette-running business, Belmokhtar's links to thosewho seized towns across northern Mali last year are unclear.
French media said the militants were also demanding thatAlgeria, whose government fought a bloody war against Islamistsin the 1990s, release dozens of prisoners from its jails.
AMERICANS
The militants said seven Americans were among the 41 foreignhostages - a figure U.S. officials said they could not confirm.
Norwegian energy company Statoil, which operates the gasfield in a joint venture with Britain's BP and the Algerianstate company Sonatrach, said nine of its Norwegian employeesand three of its Algerian staff were being held.
Also reported kidnapped, according to various sources, werefive Japanese working for the engineering firm JGC Corp, aFrench national, an Austrian, an Irishman and the Britons.
U.S. Defense Secretary Leon Panetta said: "I want to assurethe American people that the United States will take allnecessary and proper steps that are required to deal with thissituation."
He said he lacked firm information on whether there werelinks to the situation in Mali. Analysts pointed to shiftingalliances and rivalries among Islamists in the region to suggestthe hostage-takers may have a range of motives.
In their own statements, they condemned Algeria's secularistgovernment for "betraying" its predecessors in the bloodyanti-colonial war against French rule half a century ago byletting French warplanes fly over its territory to Mali. Theyalso accused Algeria of shutting its border to Malian refugees.
Panetta said Washington was still studying legal and otherissues before providing more help to France in the war in Mali.
Hollande has called for international support against rebelswho France says pose a threat to Africa and the West, and admitsit faces a long struggle against well-equipped fighters whoseized Timbuktu and other oasis towns in northern Mali and haveimposed Islamic law, including public amputations and beheading.
Islamists have warned Hollande that he has "opened the gatesof hell" for all French citizens.
Some of those held at the facility, about 1,300 km (800miles) inland, had sporadic contact with the outside world.
The head of a French catering company said he hadinformation from a manager who supervises some 150 Algerianemployees at the site. Regis Arnoux of CIS Catering told BFMtelevision the local staff was being prevented from leaving butwas otherwise free to move around inside and keep on working.
"The Westerners are kept in a separate wing of the base,"Arnoux said. "They are tied up and are being filmed. Electricityis cut off, and mobile phones have no charge.
"Direct action seems very difficult. ... Algerian officialshave told the French authorities as well as BP that they havethe situation under control and do not need their assistance."
MALI OFFENSIVE
French army chief Edouard Guillaud said ground forces werestepping up their operation to engage directly "within hours"the alliance of Islamist fighters, grouping al Qaeda's NorthAfrican wing AQIM and Mali's home-grown Ansar Dine and MUJWA.
West African military chiefs said the French would soon besupported by about 2,000 troops from Nigeria, Chad, Niger andother states - part of a U.N.-mandated deployment that had beenexpected to start in September before Hollande intervened.
Chad's foreign minister, Moussa Faki Mahamat, told RadioFrance International his country alone would send 2,000 troops,suggesting plans for the regional force were already growing.
In Mali, residents said a column of some 30 French Sagaiearmoured vehicles had set off toward rebel positions from thetown of Niono, 300 km (190 miles) from the capital, Bamako.
A Malian military source said French special forces unitswere taking part in the operation. Guillaud said France'sstrikes, involving Rafale and Mirage jet fighters, were beinghampered because militants were sheltering among civilians.
Many inhabitants of northern Mali have welcomed the Frenchattacks, although some also fear being caught in the cross-fire.
Hollande said on Tuesday that French forces would remain inMali until stability returned to the West African nation.
The conflict, in a landlocked state of 15 million twice thesize of France, has displaced an estimated 30,000 people andraised concerns across mostly Muslim West Africa of aradicalisation of Islam in the region.
But many who have lived for many months under harsh andviolent Islamist rule said they welcomed the French.
"There is a great hope," one man said from Timbuktu, wherehe said Islamist fighters were trying to blend into civilianneighbourhoods. "We hope that the city will be freed soon."
