(Adds statements from family and journalists' group)

By Nidal al-Mughrabi

GAZA, June 1 (Reuters) - Kidnapped BBC Gaza correspondent Alan Johnston said he was in good health and being treated well in a video released on Friday, his first message from captivity since militants seized him 11 weeks ago.

It was the clearest evidence yet that he was alive following his March 12 abduction, although it was not known when the tape was made. The British reporter criticised Israel and London's policy towards the Muslim world.

"My captors have treated me very well," he said on the video posted on an Islamist Web site by a group called the Army of Islam, which said last month it had kidnapped him.

"They have fed me well. There has been no violence towards me at all and I'm in good health," said Johnston, wearing a baggy red sweater and sitting before a dark grey background.

The group holding him repeated its demand on the video for Britain to free Muslim prisoners, particularly the Islamist cleric Abu Qatada. Johnston criticised the British military presence alongside the United States in Afghanistan and Iraq.

The Scotsman, who turned 45 in captivity last month, is the only Western correspondent based full-time in the Gaza Strip, where a year-old economic embargo and fighting among militants have worsened living conditions for the 1.4 million people crammed into the territory.

None of several foreigners seized in Gaza in recent years has been harmed. None has been held as long as Johnston, with most freed within days.

Saeb Erekat, a top adviser to Palestinian President Mahmoud Abbas, called the video "proof of life", denounced the kidnappers and urged the government led by the militant group Hamas to act.

"Who's paying them? Who's sponsoring them? They're destroying the Palestinian cause. They're harming us. They're harming Islam and I believe the government must act," Erekat, of Abbas's Fatah movement, told the BBC.

Palestinian Prime Minister Ismail Haniyeh of the rival Islamist group Hamas also called for Johnston's immediate release: "This is an action that does not serve Islam, does not serve the Palestinian cause, and does not serve those who have abducted him," he said.

"MORE NEGOTIATIONS"

Mohammad al-Madhoun, an aide to Haniyeh, said the tape might show Johnston was in good health but was not a sign that a deal to secure his release was near.

"I expect more concentrated negotiations to come," he said, adding that the kidnappers had already dropped some demands.

British Prime Minister Tony Blair said: "I don't think I should really comment on the video as such, made in the circumstances in which it is. But we will carry on doing everything we can and hope that we can secure his release."

A statement issued by Johnston's family said: "We are very pleased to see Alan and to hear him say that he is not being ill-treated -- although it is clearly distressing for us to see him in these circumstances."

The New York-based Committee to Protect Journalists issued a statement expressing relief at the confirmation that Johnston was alive but said it was alarmed that he continued to be held against his will and appealed for his release.

Palestinian officials had often said they believed Johnston was safe and well, although an e-mail in the name of another, unknown group said in April he had been killed.

The video, posted on a Web site often used by al Qaeda, begins with a voice reciting a verse from the Koran calling for Muslims to fight foreign "infidels".

"In all this, you can see the British government is endlessly working to occupy Muslim lands against the will of the people in those places," Johnston said in the video.

The tape was interrupted as he started addressing his family. It was again interrupted as Johnston was about to list the captors' demands. There followed part of an audio tape from the Army of Islam, issued on May 9, that demanded the release of Abu Qatada and other Muslims in Britain and "infidel" states.

Abu Qatada is described by the British government as a "significant international terrorist" with suspected close links to al Qaeda. He is detained but has not faced trial. (Additional reporting by Firouz Sedarat and Summer Said in Dubai and Adam Entous, Julian Rake, Ari Rabinovitch and Ori Lewis in Jerusalem)

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