(Adds curfew extended, paragraph 6, edits)

By Mussab Al-Khairalla and Alastair Macdonald

BAGHDAD, Nov 5 (Reuters) - An Iraqi court sentenced a shaken but defiant Saddam Hussein to hang on Sunday for crimes against humanity, sparking joy for Shi'ites he oppressed and resentment among his fellow Sunnis across Iraq's violent sectarian divide.

As mortar rounds crashed on warring Baghdad neighbourhoods and police reported sporadic clashes despite a curfew on the capital, Shi'ite Prime Minister Nuri al-Maliki called for unity after the ousted leader was handed "the punishment he deserves".

U.S. President George W. Bush, whose forces set up the court three years ago, called it "a milestone in the Iraqi people's effort to replace the rule of a tyrant with the rule of law".

U.S. officials dismissed charges the verdict was timed to aid Bush's Republicans at elections on Tuesday that have been dominated by mounting dismay at the bloodshed in Iraq.

Defence lawyers, saying they saw little hope from an appeal in the coming months, dismissed it as "victor's justice".

The curfew in Baghdad and other flashpoint areas would go on through Monday on fears of violence, a government source said.

Saddam, 69, initially refused to stand when brought in to hear the verdict from Kurdish chief judge Raouf Abdul Rahman, at a quickfire, 45-minute hearing. When he did, shakily, with clear emotion, he yelled the defiant Arab battle cry "Allahu Akbar!" (God is Greatest) and "Long live Iraq" as the judgment was read.

CRIMES AGAINST HUMANITY

"The court has decided to sentence Saddam Hussein al-Majid to be hanged until he is dead for crimes against humanity," Abdul Rahman said, ignoring Saddam's earlier bombastic plea that he should face a military firing squad, not the hangman's noose.

The judge, who earlier ejected former U.S. attorney general Ramsey Clark from the defence panel after he called the court a "mockery of justice", threw out a court guard for chewing gum and laughing as he stood by the fallen strongman in the dock.

Bearded and tieless in a black suit, and clutching a Koran, Saddam called for "forgiveness" for "aggressors" and "traitors".

A lengthy written verdict is expected later in the week.

The former leader has been sentenced to death before, in absentia for trying to assassinate Iraq's then leader in 1959.

He has been held by U.S. troops at Baghdad airport for three years and any execution, possibly next year, is likely to happen behind prison walls, like those of other criminals this year.

Before then, however, he will continue to stand trial for genocide against the Kurds. He is due back in court on Tuesday.

His half-brother, Barzan al-Tikriti, and former judge Awad al-Bander were also sentenced to death for killing, torturing and deporting hundreds of people from the Shi'ite town of Dujail after Shi'ite gunmen tried to kill Saddam there in 1982.

Former vice president Taha Yassin Ramadan received a life term. Three Baath party officials were jailed for 15 years and an eighth, minor defendant was acquitted for lack of evidence.

Saddam admitted ordering the execution of 148 men, calling it justified in wartime against allies of Shi'ite Iran.

International human rights groups, which had called for the case to be heard abroad, said the killing of three defence lawyers, the resignation of a judge over political interference and flaws in evidence meant that it fell short of a fair trial.

But U.S. and Iraqi officials hailed the year-long process as proof of the independence of Iraq's judiciary and a new landmark in the development of international war crimes law since Nazi leaders were tried, and some hanged, at Nuremberg 60 years ago.

The European Union and the Vatican, firmly opposed to capital punishment, urged Iraq not to hang Saddam.

DANCING FOR JOY

In Shi'ite towns and in parts of Baghdad, people poured into the streets after the televised hearing, dancing and yelling for joy at the fate of the man who oppressed them for three decades.

"The court has delivered justice for my son, who was killed by Saddam," housewife Um Hussain said in the Shi'ite holy city of Najaf as crowds chanted "Death to Saddam! Die you Baathists!"

In Saddam's Sunni home town of Tikrit, dozens of men and boys waved his portrait and chanted the old Baath party slogan "Saddam, Saddam! I give my life and blood for you, Saddam!"

But hundreds of killings a week have left many distracted and indifferent to the leader who long boasted he kept sectarian passions in check -- celebratory gunfire in Baghdad was minimal compared to that heard when Saddam's sons were killed in 2003.

In the northern city of Mosul, where Arabs and Kurds are vying for control, 30-year-old Bahjat, who declined to give his full name out of fear, said: "They have condemned Saddam for the killings that happened when he was president. But who will judge the leaders for the killings that happen every day now?" (Additional reporting by Ibon Villelabeitia, Ahmed Rasheed, Mariam Karouny, Claudia Parsons and Reuters staff across Iraq)

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