* Ideology-based insurgency shifts to organised crime
* Reports of extortion, bombs placed in front of businesses
MOSUL, Iraq, Nov 27 (Reuters) - Drive-by shootings, murders and extortion are the new calling cards of a weakened insurgency in Mosul, replacing suicide bombings as the worst nightmare for residents of the northern Iraqi city.
A dusty, brooding city of three million people, Mosul has long been a tinderbox of sectarian tensions that has allowed al Qaeda to retain a foothold and terrorise residents even as other Iraqi cities like Baghdad enjoy a tentative return to normalcy.
Attacks in Mosul are down sharply and high-profile car and truck bombings have been limited to areas outside the city, but the progress has been accompanied by growing signs of organised crime for money, U.S. military officials say.
After almost seven years of violence, some Mosul residents say they feel safer, but many remain wary.
People have to be unlucky to be caught in an explosion, said Ali, 34, who declined to give his full name as he trained to become a bodyguard under a U.S. project to protect judges. "But assassins, they come to get you and you don't have a chance."
The predicament of Mosul -- considered a microcosm of Iraq for its diverse ethnic makeup of Arabs, Kurds, Christians and Turkmen -- highlights the challenges as Iraq tries to make the transition to a normal civilian society and U.S. troops leave.
Not long ago, big blasts would rock the city from dawn to dusk. The city remains among the most violent in Iraq, but shootings by gunmen in speeding cars, small pipe bomb blasts and extortion rackets are now the order of the day.
U.S. military officials say a crackdown on sources of financing for insurgents -- like curbing oil theft from a pipeline in the Tigris valley and doubling troops on the Syrian border -- has forced insurgents into crime to raise money.
"The insurgency has evolved from being ideologically-driven to organised crime looking for money," said Colonel Gary Volesky, the commander of U.S. forces in Mosul.
There are reports of thugs demanding 10 percent of the value of business contracts as protection money, and bombs being placed in front of businesses to intimidate them, said Volesky.
"Because of their inability to do, in some instances, those high-profile attacks ... they're resorting to extortions, assassinations to continue to exert pressure on individuals," said U.S. Brigadier General Thomas Vandal.
Despite the apparent trend toward extortion, local politicians and judges remain among the biggest targets for assassinations, a U.S. reconstruction official said.
Gunmen shot dead a senior Turkmen politician in front of his house this week, while a judge narrowly escaped death last week when gunmen opened fire on his car. How much of the organised crime stems from insurgents rather than criminals is unclear.
Still, U.S. officials maintain that Mosul is far safer than it has been in years. In January, attacks averaged nine to 10 a day, but now average less than four a day, said Volesky.
Violence in Mosul remained stable after U.S. forces withdrew from cities on June 30 and is down in recent weeks, Vandal said.
Still, the city's future now depends on an understaffed Iraqi police force, which is looking to hire 8,000 policemen.
A trickier issue longer term will be resolving Arab-Kurd tensions in the city, which al Qaeda has successfully exploited.
The Sunni Arab governor of Nineveh province -- of which Mosul is the capital -- was elected on an anti-Kurd platform, while Kurds have led a boycott of the provincial council.
A series of bombings this year that killed scores outside Mosul appeared designed to fan the discord.
"What keeps me awake at night is that there is some event out there -- a high-profile attack that is the stimulus that creates Arab-Kurd friction or stimulus that creates the sectarian violence that we saw in '05 or '06," said Vandal.
"That's what we worry about the most." (Editing by Michael Christie) ((email@example.com, Baghdad newsroom, +964 7901 917 023, firstname.lastname@example.org))
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