By Tim Cocks

RAMADI, Iraq, Sept 1 (Reuters) - Iraq must invest heavily in Anbar province's crumbling economy if it wants to ensure a bloody insurgency that once raged there does not return, the commander of U.S. forces in western Iraq said on Monday.

Speaking to Reuters as the U.S. military handed control of the former insurgent heartland to Iraqi security forces, Major-General John Kelly said Iraq's government should inject urgently needed cash to build on recent security gains.

"How confident am I that this (insurgency) is over? I'm only as confident as I look to Baghdad," he said. "It's not really up to the police or Marines any more, it's up to the government. They know what the reconstruction needs of the province are."

The handover of Anbar, the 11th of 18 provinces to be ceded to Iraqi control, is a milestone for Iraq given that only two years ago it almost lost the vast desert region to Sunni Arab insurgents and Islamist al Qaeda militants.

But while Anbar now enjoys relative peace, Kelly said the government must act to alleviate both the impact of the war and the previous U.N. sanctions against Saddam Hussein's regime, which he said had ruined the region's agriculture-led economy.

He had seen a $450 million reconstruction budget, he said, put together by Anbar's local councillors and other politicians.

"We've articulated it. If they (the central government) fund it -- and they certainly have the funds -- agriculture and jobs will take off. ... These people will be too grateful to do anything other than salute with pride their country," he said.

Prime Minister Nuri al-Maliki's Shi'ite-led government has been accused of promoting the sectarian interests of Shi'ites while neglecting Iraq's Sunni Arabs. Critics say services like roads, water and electricity were improving more quickly in Shi'ite than in Sunni areas.

But Maliki has reached out to Sunni Arabs in the past few months, cracking down on Shi'ite militias and successfully wooing the main Sunni Arab bloc back into government.

Kelly said agriculture once provided 60 percent of jobs in Anbar and that small-scale industry in the city of Falluja -- which was devastated by two U.S. military assaults in 2004 -- employed three-quarters of the people there. Both needed to be revived, he said.

DON'T LEAVE YET

As Iraq's government becomes more confident in the abilities of its own security forces, it has become bolder in demanding that U.S. troops wind down their presence in Iraq. Negotiations on a security pact defining the future U.S. presence are ongoing.

Baghdad wants U.S. forces to leave the country by 2011, with an end to routine U.S. patrols of towns and cities by mid-2009. But Kelly said Anbaris did not want the Marines to leave yet.

"If you ask any of these people that live in Anbar ... the feeling is the police can more or less stand on their own but ... don't be too far away," he said. "They want us here."

But he added they were already winding down their presence.

"We're still in the cities but never on our own, without them (police). They do a lot of operations without us."

Anbar saw fierce battles between U.S. forces allied with Iraq's government and insurgents at the height of the troubles.

Much of the province, with little oil wealth but strategic importance in its borders with Syria, Saudi Arabia and Jordan, was once in the grip of al Qaeda until Sunni tribes sick of their brutality joined forces with the Americans to kick them out, forcing them to regroup in northern Iraq.

Kelly said al Qaeda would struggle to regain a foothold, but keeping that depended on continued reconciliation with Baghdad.

"In Anbar, they are no longer an insurgency. They're a loosely organised bunch of murderers," he said. "Could they come back? Sure, if the the Iraqi central government did something to enrage ... to alienate these people," he said.

Al Qaeda aside, tensions are simmering in Anbar between Sunni tribal leaders who helped fight al Qaeda and local council leaders ahead of provincial elections. Kelly said he was confident these disputes would be resolved without bloodshed.

"They disagree a lot (but) ... they're learning how to settle disputes without shooting at each other." (Editing by Andrew Marshall and Mary Gabriel)

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