(Recasts, adds details of funeral)

By Katherine Baldwin

KABUL, July 24 (Reuters) - Britain's Foreign Secretary, on his first visit to Afghanistan, sought increased Afghan efforts to combat the corruption and narcotics trading that undermine government action against resurgent Taliban militants.

David Miliband, appointed after Gordon Brown succeeded Tony Blair as prime minister, said on Tuesday problems in Afghanistan were "manifold" but warned against fatalism over its prospects.

Britain, which has 7,100 troops based here, is only too aware of the consequences of failure of NATO's mission and of efforts to extend goverment control, particularly in tribal areas where militants are taking advantage of a power vacuum.

Deeper instability here could turn the country into a breeding ground for al Qaeda militants and have a knock-on effect on Pakistan and potentially Iran, British officials say.

"Our agenda is ... to promote economic development, to squeeze the space in which terrorist groups can develop, tackle the narcotics problem, (and) promote good government and democratic institutions," Miliband told a small group of reporters on his first trip outside Europe as foreign secretary.

He wants to encourage Afghan President Hamid Karzai to step up efforts to weed out corruption and build up his government's capacity. Miliband will hold talks with Karzai on Wednesday.

The foreign secretary's trip to Kabul coincided with the funeral of former Afghan King Mohammad Zahir Shah who died on Monday, aged 92.

Much of his agenda was cancelled or postponed because of three days of mourning and as he attended Zahir Shah's funeral.

HERE FOR LONG-HAUL

British and American officials have expressed concern at Karzai's slow rate of progress in tackling corruption and building up his government's capacity but Miliband said he was not in Kabul to criticise Karzai.

His visit so soon into Brown's new administration is designed to reassure Afghan allies that Britain's commitment is for the long haul, Miliband said, despite unease at home about rising casualty levels among British troops.

The two men will also discuss progress in fighting the Taliban and al Qaeda-linked insurgents who are especially active in the south and east, as well as counter-narcotics strategy.

In one of his final speeches last month, Blair warned Afghanistan risked being overwhelmed by the same anti-Western violence that has torn up Iraq.

"Afghanistan embodies some of the biggest challenges for foreign policy. The challenges and problems are manifold," Miliband said.

With the attempted bombings in Britain last month still fresh in mind, Miliband will also urge Karzai to work more closely with Pakistan's President Pervez Musharraf to stop the Taliban and other militants sheltering and training along the border between the two countries.

Last week, a British parliamentary committee highlighted a series of concerns about progress in Afghanistan, saying there were worrying signs the Taliban were growing stronger and Afghan police and armed forces lacked training to deal with them.

It also said the 36,000-strong ISAF mission needed reinforcements to battle the Taliban and al Qaeda militants that were expanding their influence in the south.

Britain leads NATO forces in the restive Helmand province in southern Afghanistan.

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