UPDATE 3-France, Britain fail to win easing of Syria arms ban
* France, Britain worried about chemical weapons
* Germany "reluctant" to lift ban
* Some member states favour easing economic sanctions on rebels (Updates with end of discussion, quotes)
DUBLIN, March 22 (Reuters) - France and Britain failed to persuade the European Union to back their call to lift an arms embargo on Syrian rebels on Friday despite warning that President Bashar al-Assad could resort to using chemical weapons.
Paris and London want to exempt Assad's opponents from an EU arms embargo, a step they believe would raise pressure on Assad to negotiate after two years of a civil war that has claimed 70,000 lives.
But they won little support from other EU member states at a foreign ministers' meeting in Dublin, diplomats said, despite raising concerns about chemical weapons to bolster their case.
"I insisted that very close attention must be paid to the possible use by Assad of chemical weapons ... There are indications that he might have used them or that he might use them," French Foreign Minister Laurent Fabius told reporters at the close of Friday's talks.
Assad's supporters and opponents accused each other of using chemical weapons after 26 people were killed in a rocket attack near the northern city of Aleppo this week.
In a letter to EU foreign policy chief Catherine Ashton setting out their case, Fabius and British Foreign Secretary William Hague said they were "increasingly concerned about the regime's willingness to use chemical weapons".
Countries such as Germany and Austria remain opposed to lifting the arms embargo for the rebels. They fear it could lead to weapons falling into the hands of Islamist militants, fuel regional conflict and encourage Assad's backers, Iran and Russia, to step up arms supplies to him.
"We are reluctant about lifting the embargo ... We have to avoid that weapons could come into the wrong hands and that terrorists, jihadists, extremists would misuse these weapons," Germany's Foreign Minister Guido Westerwelle told reporters.
The EU has until June 1 to decide whether to renew or amend its sanctions on Syria and discussions on what to do about the arms embargo will continue in EU working groups.
Changing the arms ban needs the backing of all 27 EU states. Without agreement, all EU measures against Syria, including asset freezes and travel bans, would collapse on June 1.
Hague and Fabius signalled their readiness to compromise by saying in their letter that they would accept "some very serious amendment" of the arms embargo, short of its complete lifting.
The embargo was previously amended in February to allow non-lethal assistance for the opposition.
Austrian Foreign Minister Michael Spindelegger said he could not see any reason for a compromise. "We are totally against so I can't see where there could be a compromise," he said.
If the arms embargo were to be lifted, Spindelegger said it would make it very difficult for Austria to leave several hundred troops on the Israeli-occupied Golan Heights as part of a U.N. peacekeeping force, because the EU would be perceived as taking sides in the Syria conflict.
Some opponents of lifting the arms embargo are ready to look at easing economic sanctions on rebel-held areas of Syria to try to strengthen the opposition.
One option would be to ease a ban on EU oil imports from Syria to permit opposition groups to sell oil to Europe, EU diplomats said.
"We must look at how we can increase assistance to the moderate Syrian opposition, in particular through political and economic support," Ashton said in a statement.
Ministers would look at "all options" to help bring about a political solution in Syria, she said. (Additional reporting by Justyna Pawlak in Brussels; Editing by Michael Roddy)