* Govt seeks to persuade al Qaeda fighters to lay down arms
* Fighters who have given up arms face poverty, exclusion
* Bad experience deters rebels from turning selves in
BOUIRA, Algeria, July 15 (Reuters) - Former Islamist militants are urging Algeria's government to widen its strategy for combating al Qaeda to include cash handouts for those who renounce violence to help them to feed their families.
The government is considering a fresh amnesty aimed at weakening al Qaeda, but former insurgents say poverty and difficult living conditions are driving some to take up arms again after surrendering under previous clemency deals.
"I know militants who repented who have resumed Jihad because they were unable to work and live," former fighter Hassen Hmida, 31, told Reuters.
Nine years ago Hmida turned himself in under an amnesty. But he says he has been abandoned by the state and has to sell cigarettes on the street to feed his wife and 4-year-old daughter.
"I regret my past, I want to focus on the present. But our living conditions are very bad. We need help," he said.
Militants operating under the banner of al Qaeda in the Islamic Maghreb (AQIM) are waging a campaign of violence that threatens stability in this oil and gas producer and which, security officials say, could spill over into Europe.
The violence has subsided significantly from the 1990s, when a conflict between Islamist fighters and the government killed 200,000 people, according to estimates by international non-governmental organisations.
But AQIM remains dangerous. It killed 18 Algerian police in an ambush last month, officials said, its deadliest attack in nearly a year. Earlier in June it said it had killed a British hostage it had been holding in neighbouring Mali.
Support is growing among Algeria's ruling elite for a new amnesty which would be extended to even the hardcore of AQIM fighters. Previous clemency offers have excluded people deemed to have too much blood on their hands.
However, former militants say that for the new amnesty to be effective, the government needs to do more than just offer fighters immunity from prosecution.
"Our daily living conditions do not encourage rebels still fighting to surrender and lay down their arms," said Sheikh Ahmed, who turned himself in under an amnesty in 2000.
Under past amnesties, some former militants have been given financial help. But this is sensitive for the government, which does not want to be seen as rewarding killers. Many people say the ex-militants should be prosecuted, not pardoned.
Sitting under an olive tree next to his dilapidated one-storey home in the Bouira province, 100 km (62 miles) east of Algiers, he described how for 7 years he was local commander of a militant group called the "Green Death Phalanx."
A 51-year-old father-of-four, Sheikh Ahmed said he did not want to be identified by his family name because he feared he could be tracked down by still-active militants who want to punish him for accepting an amnesty.
SCRAPING A LIVING
Militant groups use cash from donations, kidnapping, and organised crime rackets to support fighters and their families.
Now though, Sheikh Ahmed said he struggled every day to find the 10 Algerian dinars ($0.14) he needs to pay for each of his children to travel from their remote home to school.
"I didn't get a single dinar from the government since I surrendered," said the bearded Sheikh Ahmed, who was dressed in a long white robe and Afghan-style shalwar kamiz trousers.
Local people address him by the title "Sheikh" because of his status as an elder in the community.
He said he and fellow former fighters had also been frustrated by Algerian bureaucracy. Because they and their families spent so long underground, in the eyes of officialdom they do not exist.
"I abandoned Jihad in 2000, but since then, I am confronted on a daily basis by administrative terrorism," Sheikh Ahmed, a teacher of Arabic before he joined the insurgents, told Reuters.
"(It) prevents you from having access to basic things such as getting a passport (or) a birth certificate for your child who was born in the mountains," he said. "We feel excluded and no one wants to listen to us. This is not fair."
"We don't want to practise politics," he said. "We want to live as normal citizens."
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