By Thierry Leveque

PARIS, March 28 (Reuters) - A French prosecutor said on Wednesday that 42 people, including the son of former president Francois Mitterrand, should stand trial in a $790 million scandal over arms sales to Angola in the 1990s.

Concluding a seven-year inquiry, prosecutor Jean-Claude Marin said arms traders Pierre Falcone and Arcady Gaydamak had bought their way into setting up a network of political contacts to favour their activities in the African country.

Falcone is accused of selling Russian arms to the war-torn African country in 1993 and 1994 in an affair dubbed "Angolagate" that cast a shadow over Mitterrand's two-term presidency from 1981 to 1995.

Falcone's contacts, including Mitterrand's son Jean-Christophe, the Socialist president's adviser Jacques Attali and former conservative interior minister Charles Pasqua, are suspected of accepting large sums to facilitate the deals.

The sums range from $2.6 million in Mitterrand's case to $160,000 for Attali.

The case is one of a series of murky politico-financial scandals from the Mitterrand era and involves political figures on both the left and right as well as a colourful associated cast including the thriller writer Paul-Loup Sulitzer.

Falcone and Gaydamak bought tanks, helicopters, artillery pieces, mines, flame throwers and other weapons in eastern Europe and sold them to Angola through a Paris-based company called Brenco and its Slovak subsidiary.

Prosecutors say the deals required official authorisation, a charge rejected by the defence.

The weapons were used by Angolan President Eduardo Dos Santos to fight rebel UNITA forces under Jonas Savimbi.

The prosecution said Jean-Christophe Mitterrand, who was his father's adviser for Africa from 1986 to 1992, should stand trial for "corruption and the misappropriation of public property", for which he risks 10 years in prison.

An investigating judge has to decide on whether to call a new trial, which would probably take place in 2008.

The case is the latest in a series of legal woes for Mitterrand, who was found guilty of tax fraud in 2004 and sentenced to a 30-month suspended jail sentence.

"He has committed no breach of the law," his lawyer Jean-Pierre Versini said. "He will call for a discharge (at the trial) and reserves himself the right to demand compensation."

Attali, a former adviser to Francois Mitterrand, former interior minister Pasqua and arms traders Falcone and Gaydamak should also stand trial, the prosecution said.

Falcone and Gaydamak are both abroad. They have argued that their business was legal.

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