UPDATE 2-US Senate approves compromise bill on Pakistan aid

* Legislation will trip non-military aid

* Obama announces move to applause in New York

* Richard Holbrooke says move is "step forward" (Adds Obama announcing passage; Holbrooke; bill details)

By Susan Cornwell

WASHINGTON, Sept 24 (Reuters) - The U.S. Senate on Thursday approved legislation to triple non-military aid to Pakistan to about $1.5 billion a year for the next five years as part of a plan to fight extremism.

President Barack Obama had urged passage of the measure to promote stability in a nuclear-armed country that is key to the U.S. war in neighboring Afghanistan -- despite concerns the Pakistan military may support extremist groups.

Obama got word of the Senate's decision while in New York, and announced it at a meeting of donor nations to Pakistan on the sidelines of the U.N. General Assembly, drawing applause from other leaders.

"It was the only spontaneous applause of the meeting," said Richard Holbrooke, U.S. envoy for Afghanistan and Pakistan, who called the vote "a big step forward."

The bill, approved on a voice vote, had been agreed by Senate and House sponsors of legislation passed during the summer. The sponsors were Senators John Kerry and Richard Lugar and Representative Howard Berman.

The measure, which has the "full support" of the Obama administration, expected to be approved soon by the House of Representatives.

Obama had also proposed creating "reconstruction opportunity zones" in border areas of Pakistan and Afghanistan, from which goods could be exported duty-free to the United States. But this was not part of the compromise reached on Thursday.

ECONOMIC TURMOIL

Pakistan has been struggling to stem Islamist violence and bolster an economy kept afloat by foreign donations and a $11.3 billion International Monetary Fund loan.

The U.S. aid, which must be approved by congressional appropriators annually from 2010 to 2014, will fund a wide range of development projects from Pakistani schools and roads to the judicial system.

While not stipulating dollar amounts of military aid, the legislation sets out conditions for such assistance, including Pakistani cooperation to dismantle nuclear supplier networks and combat terrorists, a Senate summary of the bill said.

Another condition requires Pakistani security forces not to subvert judicial processes.

Pakistani officials had sought unconditional help, saying aid with strings attached could fail to generate goodwill.

A recent Congressional Research Service document said the U.S. had given Pakistan $15.4 billion since 2002, about two-thirds security-related and the rest economic aid. Berman said earlier this year that it was important that Congress "no longer provide a blank check" to Islamabad.

Many al Qaeda and Taliban members fled to northwestern Pakistan after U.S.-led soldiers ousted Afghanistan's Taliban government in 2001.

The United States has pressed Pakistan to eliminate militant sanctuaries, and tensions are high over whether the government is doing enough.

U.S. pilotless drones have repeatedly attacked militant bases, sometimes killing civilians. The air strikes are deeply unpopular in Pakistan.

An Aug. 30 report by U.S. commander in Afghanistan, Gen Stanley McChrystal, said the insurgency in Afghanistan was supported from Pakistan.

McChrystal wrote that senior leaders of Afghan insurgent groups were based in Pakistan, linked with al Qaeda and "reportedly aided" by some elements of Pakistan's ISI (Inter-Services Intelligence Agency).

The bill stipulates Pakistan should use its own funds, as opposed to U.S. aid, to pay for F-16s purchased under a 2006 contract. Some lawmakers felt these planes were more aimed at bolstering Pakistan's capability to fight India than militants at home. (Additional reporting by Arshad Mohammed in New York and Sue Pleming in Washington; Editing by Alan Elsner)