ALGIERS/BAMAKO (Reuters) - Islamist fighters seized dozens of Western and Algerian hostages in a dawn raid on a natural gas facility deep in the Sahara on Wednesday and demanded France halt a new offensive against rebels in neighbouring Mali.
Three people, among them one British and one French, were reported killed, but details were sketchy and numbers of those held at Tigantourine ranged from 41 foreigners - including perhaps seven Americans as well as Japanese and Europeans - to over 100 local staff, held separately and less closely watched.
What is clear is that with a dramatic counterpunch to this week's French build-up in Mali, the region's loosely allied, al Qaeda-inspired radicals have set Paris a daunting dilemma and spread fallout from Mali's hitherto obscure civil war far beyond northwest Africa, challenging Washington as well as Europeans and shutting down a major gas field that pumps energy to Europe.
The attack, which Algeria said was led by a veteran, Afghan-trained holy warrior-cum-smuggler dubbed "The Uncatchable" by French intelligence, came just as French ground troops in Mali launched their first assault after six days of air strikes.
The United States, which like European powers endorsed France's decision to intervene last week against Islamists who have seized vast tracts of northern Mali, confirmed Americans were among the hostages and said it would work to "secure" them.
Western and African governments have been alarmed by a flow of weapons and fighters across the unmarked Sahara borders following the end of Libya's civil war in 2011 and fear that Mali, where Islamists drive the national army from the north nine months ago, could become an Afghan-style al Qaeda haven.
The militants, who said they had dozens of fighters in the gas field, issued no explicit threat but made clear to media in neighbouring Mauritania the hostages' lives were at risk.
"We hold the Algerian government and the French government and the countries of the hostages fully responsible if our demands are not met and it is up to them to stop the brutal aggression against our people in Mali," read one statement from the group, which called itself the "Battalion of Blood".
In other comments carried by the Mauritanian news agency ANI, the group said its fighters had rigged explosives around the site and any attempt to free the hostages would lead to a "tragic end". The unusually large numbers of gunmen and hostages involved pose serious problems for any rescue operation.
After dark, ANI quoted a militant source saying fighters had repelled a raid by Algerian troops. He added that the hostage-takers' weaponry included mortars and anti-aircraft missiles.
The militants said seven Americans were among the 41 foreign hostages - a figure U.S. officials said they could not confirm.
Norwegian energy company Statoil, which operates the gas field in a joint venture with Britain's BP and the Algerian state company Sonatrach, said nine of its Norwegian employees and three of its Algerian staff were being held.
Also reported kidnapped by various sources were five Japanese working for the engineering firm JGC Corp, a French national, an Austrian, an Irishman and a number of Britons.
The Algerian government, which fought a bloody civil war against Islamists in the 1990s, said it would not negotiate.
French media said the militants were also demanding that Algeria release dozens of Islamist prisoners from its jails.
Defence Secretary Leon Panetta said: "I want to assure the American people that the United States will take all necessary and proper steps that are required to deal with this situation."
He said he lacked firm information on whether there were links to the situation in Mali. Analysts pointed to shifting alliances and rivalries among Islamists in the region to suggest the hostage-takers may have a range of motives.
In their own statements, they condemned Algeria's secularist government for "betraying" its predecessors in the bloody anti-colonial war against French rule half a century ago by letting French warplanes fly over its territory to Mali. They also accused Algeria of shutting its border to Malian refugees.
Algerian Interior Minister Daho Ould Kablia told the state news agency APS there were about 20 hostage-takers led by Mokhtar Belmokhtar, an Algerian who fought against Soviet forces in Afghanistan in the 1980s and set up his own group in the Sahara recently after falling out with other al Qaeda leaders.
Some of those held at the facility, near the small town of In Amenas, close to the Libyan border and about 1,300 km (800 miles) inland, had sporadic contact with the outside world.
The head of a French catering company said he had information from a manager who supervised some 150 Algerian employees at the site. Regis Arnoux of CIS Catering told France's BFM television the local staff were being prevented from leaving but were otherwise free to move around inside and keep on working.
"The Westerners are kept in a separate wing of the base," Arnoux said. "They are tied up and are being filmed. Electricity is cut off, and mobile phones have no charge.
"Direct action seems very difficult ... Algerian officials have told the French authorities as well as BP that they have the situation under control and do not need their assistance."
Just days after a bold deployment of French troops to Mali, another former colony, that had largely silenced critics questioning his leadership after eight months in office, French President Francois Hollande faced a possible further escalation of the conflict, with Western targets at risk across Africa.
He has called for international support against insurgents who France says pose a threat to Africa and the West, and admits it faces a long struggle against well-equipped fighters who seized Timbuktu and other oasis towns in northern Mali and have imposed Islamic law, including public amputation and beheading.
Islamists have warned Hollande that he has "opened the gates of hell" for all French citizens.
French army chief Edouard Guillaud said ground forces were stepping up their operation to engage directly "within hours" the alliance of Islamist fighters, grouping al Qaeda's North African wing AQIM and Mali's home grown Ansar Dine and MUJWA.
Residents said a column of some 30 French Sagaie armoured vehicles has set off toward rebel positions from the town of Niono, 300 km (190 miles) from the capital Bamako.
A Malian military source said French special forces units were taking part in the operation. Guillaud said France's strikes, involving Rafale and Mirage jet fighters, were being hampered because militants were sheltering among civilians.
Many inhabitants of northern Mali have welcomed the French attacks though some also fear being caught in the cross-fire.
Defence Minister Jean-Yves Le Drian acknowledged that France faced a hard slog, particularly in western Mali where AQIM's mostly foreign fighters have camps: "It's tough. We were aware from the beginning it would be a very difficult operation."
Hollande said on Tuesday that French forces would remain in Mali until stability returned to the West African nation. Hollande said France hoped, however, to hand over to African forces in its former colony, "in the coming days or weeks".
West African military chiefs met for a second day in Bamako to hammer out details of a U.N.-mandated deployment that had been expected to start only in September but was suddenly kick-started by French intervention. They said their aim was to send in the first units of a 2,000-man emergency force on Thursday.
Hollande's intervention in Mali brings risks for eight French hostages held by AQIM in the Sahara as well as the 30,000 French citizens living across West Africa. A French helicopter pilot was killed on Friday, France's only combat death so far.
The conflict in Mali, a landlocked state of 15 million twice the size of France, has displaced an estimated 30,000 people and raised concerns across mostly Muslim West Africa of a radicalisation of Islam in the region.
"There is a great hope," one man said from Timbuktu, where he said Islamist fighters were trying to blend into civilian neighbourhoods. "We hope that the city will be freed soon."
(Additional reporting by Pascal Fletcher and Andrew Callus in London, Balazs Koranyi in Oslo, Laurent Prieur in Nouakchott, Daniel Flynn in Dakar, John Irish, Catherine Bremer and Nick Vinocur in Paris, David Alexander in Rome and Andrew Quinn in Washington; Writing by Alastair Macdonald; Editing by Kevin Liffey)