By Peter Apps

LONDON, Feb 28 (Reuters) - Iraqi refugees who are running out of money in Syria may head for Europe if the international community fails to supply sufficient relief funding, the United Nations said on Thursday.

"I think they will move north if things don't get better," UNHCR head of operations in Syria, Laurens Jolles, told reporters on a trip to Europe aimed in part at boosting funding from governments.

The number of Iraqis seeking asylum in European Union member states doubled in 2007 from the previous year to almost 40,000.

The United Nations High Commissioner for Refugees (UNHCR) says 1.5 million Iraqis have fled sectarian violence to neighbouring Syria and more might move towards the EU in the hope of jobs, safety and better conditions.

Overall, Iraq has produced 4.5 million refugees and internally displaced people. Numbers soared after attacks on mosques in February 2006 sparked widespread ethnic violence.

Hundreds of thousands are also in Jordan and Lebanon, and growing numbers have fled beyond the Middle East.

UNHCR says it needs $261 million to increase food relief and assistance across the region. Some 30 percent will likely be funded by the United States.

Iraqi refugees in Syria have access to some state benefits including education but are not allowed to work, although Jolles said many were working informally.

Many middle-class migrants are exhausting their resources.

CASH DISPENSER REFUGEES

"That means more children out of school -- often because they have to work," he said. "It means more prostitution. It means more people living in one apartment.

"It means more crime... many Syrians are asking why they are the ones who have to deal with this." Syria has pledged not to return people against their will.

Iraq's displaced are in cities rather than tented camps, prompting a change in how aid is delivered. With automatic cash dispensers commonplace, UNHCR has been issuing prepaid cash cards instead of handouts for the first time.

Aside from UN agencies and the Syrian Red Crescent, no other non-governmental organisations (NGOs) are allowed to operate although Jolles said a memorandum of understanding was being signed allowing in other international aid groups.

Syria closed its border and imposed a visa system in October to cap the number of new arrivals. More than 1,000 arrive each day compared with the 4,000 daily before October.

That far outstrips the numbers returning to Iraq either because they ran out of money or believed it was safer after the increase in U.S. forces credited with reducing violence.

"What we are hearing from people is that there are still abductions, attacks and killings," he said. "We are not telling people it is safe enough to return."

Of the 40,000 seeking asylum in Europe last year, almost half headed for Sweden because of a relatively friendly asylum system -- albeit one that turned down more than 10 percent of applicants.

Britain turned down 780 of the 1,110 Iraqi asylum applications it received. (additional reporting by Alastair Sharp) (Editing by Robert Woodward) (for more information on humanitarian crises and issues visit www.alertnet.org)

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