* Attorney general appoints special prosecutor
* New report gives fresh details of abuse, death threats
* White House announces new group to handle interrogations (Adds more details from CIA report, Republican comment)
WASHINGTON, Aug 24 (Reuters) - U.S. Attorney General Eric Holder on Monday named a special prosecutor to probe CIA prisoner abuse cases, a move that could distract President Barack Obama from his drive to reform the healthcare system.
Holder's decision, which promises political headaches for Obama, came after the Justice Department's ethics watchdog recommended considering prosecution of Central Intelligence Agency employees or contractors for harsh interrogations in Iraq and Afghanistan that went beyond approved limits.
"I fully realize that my decision to commence this preliminary review will be controversial," Holder said in a statement. "In this case, given all of the information currently available, it is clear to me that this review is the only responsible course of action for me to take."
Career prosecutor John Durham will head the probe, adding to the one he is already doing of the CIA's destruction of videotapes showing harsh interrogations of terrorism suspects. [ID:nN24162846]
As Holder made his decision, new details emerged about "enhanced" interrogation techniques used after the Sept. 11 attacks on the United States under then-President George W. Bush but subsequently scratched by Obama when he took office.
Bush officials, including Vice President Dick Cheney, have denied that torture was used and defended their interrogation practices as legal.
But they went beyond sleep deprivation, withholding food, and so-called waterboarding, a move to simulate drowning, of a handful of suspects. They included "unauthorized, improvised, inhumane and undocumented" techniques, a CIA report said.
In one instance, interrogators told alleged Sept. 11 mastermind Khalid Sheikh Mohammed that his children would be killed if any further attacks on the United States occurred, according to new details released from the CIA's inspector general's 2004 report. [ID:nN24531612]
The White House reiterated in a statement Obama's desire to "look forward, not back" but said "ultimately determinations about whether someone broke the law are made independently by the attorney general."
The administration also on Monday revealed it was setting up a new group to interrogate terrorism suspects in accordance with established rules and it will be overseen by the Federal Bureau of Investigation, replacing the CIA in the lead role.
The practice of rendition will continue as allowed under U.S. law, an administration official said.
POLITICAL STORM AT A CRUCIAL MOMENT
These decisions coupled with more graphic details about interrogation practices which Obama ordered halted when he took office in January were likely to ignite a political storm at a crucial time in Washington.
Republicans will likely accuse Obama of being soft on national security while some liberal backers will be upset if the probe is limited to those who conducted interrogations while excluding the officials who approved the policies. [ID:nN24449258]
The debate, which could distract lawmakers, comes as Obama runs into strong political headwinds in his bid to advance his top legislative priority -- overhauling the $2.5 trillion health care system.
"It will be painful and obviously politically risky for Obama to do this now -- he'll take a lot of flak that he's undermining morale among the clandestine service in the CIA," said Stephen Flanagan, an international security expert at the Center for Strategic and International Studies.
The American Civil Liberties Union had sued to have the CIA report released and called for Holder to go further and probe "senior officials who authorized torture or wrote the memos that were used to justify it."
Bush administration officials including Cheney argued that some of the techniques yielded valuable information. But in one case -- a mock execution -- was later judged "not effective because it came across as being staged," the CIA report said.
THE BATTLES OF YESTERDAY
The top Republican on the House Intelligence Committee, Representative Pete Hoekstra, slammed Holder's decision as "distracting from the CIA's current counterterrorism efforts."
CIA Director Leon Panetta tried to soften the blow, sending a note to employees urging that they keep their eyes on the future, calling the report details an "old story." There have been concerns the release could hurt intelligence gathering.
"For the CIA now, the challenge is not the battles of yesterday, but those of today and tomorrow," he said.
Holder's decision reverses an earlier determination by the Bush administration which decided against pursuing prosecutions after the CIA first referred its inspector general's findings to the Justice Department.
When Obama took office, he ordered government agencies to abide by interrogation limits in the U.S. Army Field Manual, which do not include waterboarding.
Obama has decided to establish a new group of experts to handle interrogation of terrorism suspects as recommended by a task force to review policies, the White House said on Monday.
They would be limited to the Army manual and techniques used by law enforcement officials. The group will be housed at the FBI but will answer to the National Security Council, giving the White House more direct say over its actions.
Additional reporting by Tabassum Zakaria in Washington and Patricia Zengerle in Martha's Vineyard, Mass.; Editing by Cynthia Osterman
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