* Frustration with Tripoli drives eastern autonomy push
* Autonomy lobby threatens to turn off oil if demands ignored
* Government accuses easterners of separatism
* Other regions also loosening ties to capital
By Hadeel Al Shalchi
BENGHAZI, Libya, April 16 (Reuters) - It is the cradle of Libya's revolution: the Benghazi square where protesters just over a year ago first demanded the fall of Muammar Gaddafi and waved the black, green and red flag that came to symbolise their rebellion.
Last month demonstrators were back at the same spot, now part of a Libya free of Gaddafi. This time they also waved another flag, with a white star and crescent etched on a black background - the flag of eastern Libya.
This flag has become the banner of a push for regional autonomy that has enraged Libya's new leadership and raised questions about whether the country, focus of huge optimism after it forced out Gaddafi, can hold together now he has gone.
Eastern Libya, with Benghazi as its main city, has historical reasons for being suspicious of central rule.
Under the Ottoman empire it was the province of Cyrenaica, separate from Tripolitania to the west where the Libyan capital now lies. Colonial Italy brought the provinces together, eventually reviving the classical name "Libya" in the 1930s.
After independence, Benghazi became the home of the Libyan monarchy. However, the east was neglected after Gaddafi deposed King Idris in 1969, and it fears the same thing is happening now that the National Transitional Council (NTC) is in power.
But there is a stronger reason why the east is pushing for autonomy now. Seven months after Gaddafi's rule ended, the NTC is too weak and disorganised to impose its authority on the country, leaving a vacuum that is being filled by local solutions.
Just as Benghazi is pushing to run its own affairs, so the same phenomenon is taking place - though with less fanfare - in other cities such as Misrata and Zintan in western Libya.
"The current context is one of a huge mess," said Larbi Sadiki, a professor of Middle East Studies at Britain's Exeter University. "The NTC has not been reaching out to the Libyan heart. It is disorderly. Misrata is doing what it wants, Zintan controls the airport, all kinds of demands are being made on this government and it is not being responsive to it."
The debate over regional autonomy matters to the outside world. A failed state in Libya would create a haven for violent militant Islam, weapons smuggling and the drugs trade right on Europe's doorstep.
It could also jeopardise energy supplies. Eastern Libya is home to the country's biggest oil fields and its Arabian Gulf Oil Co, at the moment a subsidiary of the National Oil Corporation, pumps 331,000 barrels of crude a day.
One of the leaders of the drive for eastern autonomy, Bubaker Buera, suggested that Benghazi could use the oil to press for its aims. Asked what would happen if his demands were not met by the government in Tripoli, Buera said: "We may be forced to stop oil flow."
Many people in eastern Libya view the present through the prism of an apparently more prosperous past.
For about 10 years after Libya became an independent state in 1951, the country was run along federal lines with three regions. Power was devolved to Cyrenaica, to the southern province of Fezzan, and to Tripolitania in the west.
Benghazi was Libya's commercial capital and the east had the cachet of being the family homeland of King Idris, and of Omar al-Mokhtar, who led the resistance to Italian occupation a generation before.
But Libya began to centralise its government in the last years of the monarchy. Gaddafi sped up the process after he staged a military coup in 1969, concentrating the power of the state in Tripoli.
Easterners say that the their infrastructure was neglected, their schools and hospitals poorly equipped. The same could be said of other parts of Libya, but for Benghazi the decline felt steeper and more grievous.
Few international flights landed in Benghazi and the airport was often closed. Embassies and government offices were moved to Tripoli, with only a handful of consulates staying in Benghazi.
In a sign of discontent, eastern dissidents led the National Front for the Salvation of Libya, which almost assassinated Gaddafi in 1984. An Islamist insurgency against Gaddafi in the 1990s also came from the east.
With Gaddafi gone, the east hoped for better but for most the experience has been disappointing. They say the east has been all but ignored since the NTC left its temporary headquarters in Benghazi and moved to Tripoli last August.
Nasser Ahdash, who is Benghazi leader of a group called the National Forum of the 17th February Rebellion, said he was not demanding federalism but understood the frustration of his fellow easterners.
"The new leadership found this well-established four-decade-old system when they came into power and they don't have the expertise to break it apart," he said. "The leadership hasn't been able to make concrete decisions because they lack dialogue with the people."
Last month, a group of civic leaders from the east brought together several thousand people to create what it called the Congress for the People of Cyrenaica.
The gathering set out a manifesto for a federal Libya where the central government is responsible for issues such as foreign affairs, energy and defence, but the east has powers to set its own taxes and manage its own police force and courts.
In the meantime, leaders of the congress say they want a debate about federalism and are pushing for greater representation for the east in a new national assembly which is scheduled to be elected in June.
The Cyrenaica congress chose Ahmed Zubair al-Senussi, a distant relative of King Idris, as its symbolic head. He is the closest thing Libya has to royalty as Idris was his great uncle.
"Just because we have one language and one religion, it doesn't mean that our own people won't oppress us," said Senussi, a political prisoner under Gaddafi. "We can't wait for the weak government to figure itself out and we found a solution for ourselves in federalism."
A federal system is attractive to many people in eastern Libya while the NTC is struggling to assert its authority.
Al-Senussi al-Maghrabi stood out in his traditional hooded robe with red stripes when he attended the pro-autonomy rally in the Benghazi square.
"With federalism, I will be able to have a real impact on the way my district is ruled," the 27-year-old said. "A doctor like me from Benghazi will finally have the chance to go abroad and learn. It won't be reserved for those from Tripoli only."
Standing nearby, Hakim Abdel Jabir said he had come to Benghazi with 200 others from the nearby town Ajdabiya. We are one with our brothers in the west and our capital will remain Tripoli, but the NTC is oppressing us the same way Gaddafi did, so we need to go back to federalism," he said.
When the Cyrenaica congress said it wanted to discuss federalism and autonomy with the NTC, the reaction from Tripoli was as if the east had unilaterally declared independence.
Congress supporters were called traitors and separatists. NTC leader Mustafa Abdel Jalil attacked the autonomy campaign as a foreign plot and said he would use force if necessary to keep Libya united.
One congress leader said a note had been left outside his Tripoli office threatening to kill him. Even Libya's chief Muslim cleric staged an attack.
"They branded us as separatists, which is not true. The mufti... swung completely behind the government's position and people were attacking us in the mosque," said Buera, one of the founders of the congress.
The ripples from the row reached Rome, where Libya's first post-revolt oil summit was held. In the opening session, easterners in the audience accused the NTC of ignoring the fighters from Cyrenaica to whom the uprising was owed.
In the awkward moments that followed, a speaker grabbed a microphone and attempted to smooth things over, saying "we have no problems", a remark met with snorts from the audience.
Later, though, the NTC was more conciliatory. It promised to hold its weekly meeting in Benghazi on the last week of each month, trying to fight perceptions that the government is detached from the region.
Abdel Jalil has since held talks with a Cyrenaica congress official, though nothing was agreed.
Ultimately, though, the furious initial reaction has polarised the debate and made constructive dialogue less likely.
The congress is now planning a second conference on April 17 to show its strength of support and to choose a 300-member executive body, an event which could again anger Tripoli.
"We would hate to separate," said Buera. "Via federalism we can make an organised arrangement, but if we don't then every region will go its way." (Editing by Lin Noueihed, Christian Lowe and David Stamp) ((Hadeel.AlShalchi@thomsonreuters.com)(Office:+218-91-938-5729)