* Lufthansa offers temporary workers permanent contracts
* Cabin crew holding 24-hour, Germany-wide strike Friday
* Union has no immediate plans for further strikes
* Lufthansa cancels around half of its flights Friday (Adds UFO comment)
By Peter Maushagen and Victoria Bryan
FRANKFURT, Sept 7 Lufthansa has ended a run of strikes which had led to the cancellation of more than 1,000 flights after conceding to a key demand by organised labor, with both sides agreeing to seek arbitration next week.
"We hope that this step will help UFO to join us in constructive talks to come up with a competitive pay structure for cabin crew," Lufthansa Chief Executive Christoph Franz said in a statement.
The concession to offer permanent contracts to some temporary cabin crew came after both sides agreed to meet for talks on Friday as the third strike in eight days and the biggest to date brought fresh disruption across Germany.
Indeed, Franz's gamble may have paid off. The cabin crew union, UFO, agreed later on Friday to mediation and pledged not to disrupt passengers any further with walk-outs.
"Starting tomorrow, there will no longer be any strikes until we agree to or reject an arbiter's ruling," UFO union boss Nicoley Baublies told reporters in Frankfurt.
He had earlier said UFO was not planning any further strikes beyond Friday and that he wanted to try to end what he described as "trench warfare."
In a statement , Lufthansa said a mediation contract would be signed on Wednesday with the aim of agreeing on an arbiter by the end of next week.
Lufthansa has been resisting UFO's demands for 5 percent pay increases and guarantees against outsourcing as it tries to slash costs in a plan to improve annual earnings by 1.5 billion euros ($1.9 billion) by 2014.
The airline said on Friday it would stop using flight attendants employed on temporary contracts at a separate agency for its Berlin operations and offer them permanent jobs within the Lufthansa group next year.
Lufthansa had started using the workers - who work longer hours on a more flexible basis - a few months ago. UFO had tried to appeal the plans but a German court backed the airline this year in its use of such contracts, which are common in the car industry.
Germany's labour relations are usually more harmonious than in other countries such as France and Spain, but after years of low wage growth, employees are fighting back.
In May, Germany's largest industrial union agreed to a 4.3 percent pay rise for 3.6 million car and engineering industry workers, their biggest pay rise since 1992.
In Germany's airline industry over the last year, there have been threatened walk-outs by air traffic controllers, and a strike by airfield workers in February at Frankfurt airport in rows over pay.
BACK TO NORMAL
Lufthansa has previously offered UFO 3.6 percent more pay in exchange for longer hours, but refused to reconsider the use of temporary workers.
Talks between the two sides broke down last week after 13 months of negotiations. The union went on strike for eight hours at Frankfurt airport last Friday before widening the stoppage to Munich and Berlin on Tuesday this week.
Lufthansa said it hoped to operate about half its daily schedule of around 1,800 flights on Friday, more than previously forecast, and that operations should be almost back to normal on Saturday.
After the 24-hour, Germany-wide strike was announced earlier this week, the airline said it would probably cancel around two thirds of flights.
Frankfurt airport, Germany's busiest, was relatively quiet on Friday and spared the long queues and crowds of stressed passengers seen last week.
Airlines such as British Airways, Air Berlin and Lufthansa unit Austrian Airlines, which is not affected by the strike action, have said they would operate larger planes on routes to Germany to offer more seats to passengers affected by the strike.
($1 = 0.7915 euros) (Additional reporting by Christiaan Hetzner; Editing by Erica Billingham, David Cowell and Bernadette Baum)