IRAQ WRAPUP 5-Baghdad blast highlights Iraq security challenges

BAGHDAD, Nov 14 (Reuters) - Sectarian strife remains a great threat despite improving security, Iraqi leaders said on Wednesday, only hours after a big blast rocked central Baghdad.

The roadside bomb killed two civilians and wounded three just outside the heavily fortified Green Zone that houses the U.S. embassy and government ministries, police said. Three U.S. soldiers were killed north of Baghdad, the military said.

The explosion in Baghdad was close to a checkpoint where hundreds of Iraqis who work inside the sprawling complex queue every morning. It was one of the loudest blasts heard in the capital in weeks after a sharp lull in attacks.

U.S. military spokesman Rear Admiral Gregory Smith said the blast, targeting a convoy of military vehicles, caused "multiple military and civilian casualties".

In a sign of progress in attempts to heal sectarian divisions, Iraq's cabinet submitted to parliament a draft bill that would ease curbs on former members of Saddam Hussein's Baath party joining the civil service and military.

The cabinet approved changes to the draft late on Tuesday, government spokesman Ali al-Dabbagh said in a statement.

Officials had previously said the bill had already been given to parliament. It was unclear what prompted the new amendments to a bill that Washington regards as vital to fostering national reconciliation.

Many Baath party members were Sunnis who feel persecuted by Prime Minister Nuri al-Maliki's Shi'ite-led government.

South of Baghdad, police sources said a bomber wearing a vest packed with explosives killed two people and wounded six at a meeting of local Sunni Arab tribal sheikhs in Iskandariya, a volatile town in an area known as the "triangle of death".

Iraqi leaders gathered at a reconstruction conference in the Green Zone, not far from the Baghdad blast site, and said money alone would not solve Iraq's problems.

Vice President Tareq al-Hashemi, a Sunni Arab, said Iraq had suffered not just material destruction in a sectarian conflict that had tipped the nation to the brink of all-out civil war.

"The greatest destruction was the social fabric," Hashemi told the conference. "This will remain the principal obstacle to security and stability."

RAID

Intra-sectarian trouble remains a big hurdle as well as conflict between majority Shi'ites and minority Sunni Arabs.

On Wednesday, security guards from the Sunni Endowment, a state body that runs Sunni Muslim religious sites, surrounded a mosque used by the Muslim Scholars Association, an influential body of hardline Sunni clerics accused by the Iraqi government of fomenting violence.

A statement by the Muslim Scholars Association said its staff had been evicted from the Um al-Qura mosque in western Baghdad and a radio broadcast from the mosque had been stopped.

There was no immediate reason given for the raid but the two groups have long been rivals.

A bomb blast killed two U.S. soldiers and wounded four in Diyala province northeast of Baghdad on Tuesday, the military said. Another soldier was shot and killed near northern Mosul.

Their deaths took the total of U.S. soldiers killed in Iraq to 3,863, according to the independent Web site icasualties.org.

"We need to remind ourselves that this fight is not over," U.S. Ambassador Ryan Crocker told the reconstruction conference.

An extra 30,000 U.S. troops, improving Iraqi security forces and the growing use of neighbourhood police units have been credited for big drops in U.S. military and Iraqi civilian casualties in the previous two months.

However, 860 U.S. troops have been killed this year, the worst annual total since the U.S.-led invasion to topple Saddam and 11 higher than the previous worst yearly total in 2004.

U.S. President George W. Bush sent the extra troops in a last-ditch bid to stop prevent sectarian civil war in Iraq. (Additional reporting by Dean Yates, Aseel Kami and Wissam Mohammed in Baghdad; Editing by Robert Woodward)