* Attacks down in Mosul but al Qaeda not defeated
* Fixing a broken economy key to dousing insurgency
By Tim Cocks
MOSUL, Iraq, Oct 2 For a city under constant attack at the hands of a violent Sunni Arab insurgency, northern Iraq's Mosul looks in better shape than it has for many years.
Streets littered with bombed out rubble have been cleared and collapsed buildings resurrected, trash has been swept and trees planted along newly paved boulevards. A sports pitch built with American money brightens one run-down neighbourhood.
But a return to normalcy in Mosul, once known across the Middle East as a centre of learning and culture, remains a distant prospect as long as al Qaeda and other Sunni Arab insurgents continue their fight against the Iraqi government.
"We were terrified. We heard bombs every day," said Mohammed Anwar, 42, peering nervously from his small shop's fortified door at a U.S. and Iraqi army patrol outside.
"But I haven't heard an explosion for a while. God willing, it's getting better."
The blasts that shook Iraq's third biggest city almost hourly are in decline, but it remains violent, pot-holed and with miserably high unemployment, a shadow of its former self.
Services are woefully inadequate for a city of nearly 2 million, with scant electricity, water or rubbish collection and tonnes of sewage pumped raw into the Tigris river every day.
Insurgents became concentrated in Mosul after being driven out of former strongholds in Baghdad and western Anbar province by Sunni tribal sheikhs allied to U.S. forces in 2007.
That success has been hard to reproduce in northern Iraq, where a society bitterly divided between Kurds, Arabs and other ethnicities have made it harder to consolidate security gains.
Mosul and surrounding Nineveh province remain a conduit for Sunni militants with supply lines to Syria, through which Iraq says more than three quarters of foreign fighters pass.
"Nineveh's border with Syria is difficult to seal because of the long tradition of cross-border trade, much of it illicit," the International Crisis Group said in a paper this week, adding that this helped "explain the insurgency's relative success."
Tensions between Nineveh's Arab-led governorate and Kurdish leaders have meanwhile created a security vaccuum in some areas -- where neither Iraqi soldiers nor the Kurds' own Peshmerga force are present in force -- exploited by insurgents.
As U.S. troops prepare to end their combat mission in Iraq by September 2010, they are racing to pacify Mosul before then.
The task is made harder by the fact that the city lies in the faultline of a power struggle over territory and oil between Baghdad the leaders of semi-autonomous Iraqi Kurdistan, seen by the United States as the greatest threat to Iraq's stability.
U.S. and Iraqi officials know that fixing Mosul's broken economy will be key to dousing the insurgency. Al Qaeda in Iraq have found easy recruits amongst the city's destitute.
"We can target and kill and capture insurgents but what what al Qaeda in Iraq has demonstrated is their capability to regenerate leadership," said Colonel Gary Volesky, commander of U.S. forces in Mosul.
"Low level insurgents shift back and forth based on who will pay them. You have children throwing hand grenades for money."
But U.S. officials say the number, size and sophistication of attacks, mostly targeting local forces, fell after they did clearing operations with Iraq's army from January to June.
Checkpoints were tightened and youths paid to pick up trash.
In January, before provincial polls, the city suffered nine attacks a day, compared with 3-4 attacks now, Volesky said, although this has meant an increase in attacks in the surrounding province by militants shut out of the city.
Mosul survived a U.S. troop withdrawal from cities at the end of June, under a pact that requires them to leave Iraq by 2012. Some feared a surge in violence, but it remained stable.
A shift in Mosul's violence from big bombs to smaller pipe bombs, grenade attacks, drive-by shootings and kidnappings suggests a degeneration into a organised crime, officials say, which they plan to tackle by bringing in 8,000 more police.
"What's happening now isn't terrorism, it's gangsters," said Iraqi army Staff Sergeant Mortatha Abdul Karam, 37, at a checkpoint in Mosul. "They kidnap, they demand money. Maybe they used to be insurgents, but now they're just criminals."