(Includes U.S. intelligence report, last five paragraphs)

By Mariam Karouny

BAGHDAD, Aug 23 (Reuters) - Al Qaeda fighters kidnapped 15 Iraqi women and children after attacking two villages north of Baghdad on Thursday and killing a religious leader who had been trying to form an anti-al Qaeda tribal alliance, police said.

Police said 32 people had been killed in an hour-long battle between villagers and al Qaeda. The attackers, who struck just after dawn, dragged the imam of the local mosque, Younis Abd Hameed, and three worshippers outside and executed them.

Residents said the local fighters were loyal to the Sunni Arab "1920 Revolution Brigade", which has increasingly clashed with al Qaeda, and had repelled the attack.

The fighting underscored a growing split between Sunni Arab militants and al Qaeda, which U.S. forces have sought to exploit as they try to quell sectarian violence.

Al Qaeda's adherence to a hardline brand of Sunni Islam and its indiscriminate killing of civilians have isolated it from Iraq's Sunni Arab community. Tribal leaders in Anbar, Diyala and Salahuddin provinces have all formed alliances to fight it.

Brigadier-General Ali Delayan, the police chief of Baquba, provincial capital of Diyala, said Hameed had been trying to form a local council of tribal leaders opposed to al Qaeda and aligned to the 1920 Revolution Brigade.

Meanwhile the U.S. military said it had completed a major operation in Diyala targeting al Qaeda. U.S. troops also mounted an operation in June to oust fighters who had taken over large parts of Baquba. Many escaped to fight on.

The U.S. military said in a statement that its 12-day offensive in Diyala, involving 16,000 Iraqi and U.S. troops, had killed 26 al Qaeda members and cleared 50 villages.

Delayan said 22 residents had been killed in the fighting on Thursday in the villages of Sheikh Tamim and Ibrahim Yehia after the raid by about 200 militants. Ten al Qaeda fighters were killed, and the remaining attackers escaped with eight women and seven children as hostages, he said.

Hameed's mosque and at least three houses were destroyed.

LUKEWARM SUPPORT FOR MALIKI

The Shi'ite-led government and the U.S. military still view al Qaeda as "public enemy number one" in Iraq, despite the fact that its fighters make up only a small percentage of Sunni Arab militants, and many of its leaders have been killed or captured.

The group is foreign-led, although many fighters are Iraqi. Most suicide car bomb attacks responsible for large-scale casualties are blamed on al Qaeda. The U.S. military says the bombers are normally foreign and cross into Iraq through Syria.

U.S. forces have entered into agreements with Sunni Arab tribal leaders, paying them to form militias to combat al Qaeda and help pacify the restive provinces of Diyala, Anbar and Salahuddin, where the Sunni Arab insurgency has been strongest.

The plan has had a large measure of success and is likely to feature in the report on Iraq due to be presented to the U.S. Congress next month by General David Petraeus, the commander of U.S. forces in Iraq, and Ambassador Ryan Crocker. The report is widely seen as a potential trigger for a change in U.S. policy.

Washington has built up its forces in Iraq to 160,000 to help curb the sectarian violence and give Shi'ite Prime Minister Nuri al-Maliki's government breathing space to forge a political compromise among the warring sects.

But Crocker this week criticised the pace of political progress as "extremely disappointing", and Bush himself expressed frustration at the slow pace of reform.

U.S. intelligence agencies on Thursday cast doubt on Maliki's ability to heal sectarian divides.

Declassified findings of the National Intelligence Estimate said that "levels of insurgent and sectarian violence will remain high and the Iraqi government will continue to struggle to achieve national-level political reconciliation and improved governance".

The report said there had been "measurable but uneven improvements" in Iraqi security since January under the troop increase, but that Maliki's government would become more precarious over the next 6-12 months.

"Broadly accepted political compromises required for sustained security, long-term political progress and economic development are unlikely to emerge unless there is a fundamental shift in the factors driving Iraqi political and security developments," it said.

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