By Muklis Ali

BOGOR, Indonesia, April 3 (Reuters) - Muslim nations should ultimately replace coalition forces in Iraq after a period of national reconciliation, Indonesian President Susilo Bambang Yudhoyono told a meeting of Islamic clerics on Tuesday.

Yudhoyono, who is keen to see Indonesia take a bigger role in global issues and in particular in the Middle East, first floated his proposals on Iraq at a joint news conference with U.S. President George W. Bush last November in Bogor.

"The spiral effect of violence has dreadfully eroded the national tradition of religious tolerance and mutual respect. This is not the natural state of affairs between the Sunnis and Shi'ites of Iraq," he said in a speech to about 20 clerics from around the world gathering at the Bogor presidential palace to discuss Iraq.

"The first and most vital track in this proposed solution is the launching and unrelenting pursuit of reconciliation," added Yudhoyono, a former general who spent years training in U.S. military bases.

"Once the national reconciliation is achieved, the second track is the withdrawal of the coalition forces replaced by a new coalition of forces comprising of like-minded Muslim countries," said Indonesia's first directly elected president.

Yudhoyono also joined Pakistan President Pervez Musharraf in January in backing a new Muslim initiative to resolve turbulence and violence in the Middle East.

Since Yudhoyono outlined his Iraq proposal on Bush's second visit to Indonesia, the world's most populous Muslim nation, there has been little evidence of it gaining much traction.

Under the Bush administration's new Iraq policy announced earlier this year, the Pentagon has increased force levels in Iraq by about 30,000 troops in an attempt to regain control of security and reduce sectarian violence.

But opposition Democrats who hold the majority in the U.S. congress are seeking to withdraw all combat troops from Iraq in the near future.

Some Bush policies, especially in the Middle East, are deeply unpopular in Indonesia, where 85 percent of the population follows Islam. Jakarta has consistently criticised the U.S.-led invasion of Iraq.

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