By Caren Bohan

WASHINGTON, Aug 5 (Reuters) - The struggling, six-year effort to rebuild war-ravaged Afghanistan and the threat from Taliban and al Qaeda sanctuaries in Pakistan will dominate talks this weekend between U.S. President George W. Bush and Afghan President Hamid Karzai.

The more immediate crisis of trying to free 21 Korean hostages seized by the Taliban last month will also be high on the agenda for the Camp David discussions, which will begin on Sunday.

Two of the original 23 hostages have been murdered and South Korea is pressing the United States and Afghanistan to do all they can to negotiate a release of the surviving captives.

U.S. officials have described the two-day meeting between Bush and Karzai as a strategy session on Afghanistan, where violence has surged over the last 18 months to its worst level since the overthrow of the Taliban in 2001.

Karzai arrives on Sunday afternoon at the mountain-top presidential retreat. On Monday, the two leaders are to hold a news conference at 11:25 a.m. EDT (1525 GMT).

The beleaguered Karzai, the target of three assassination attempts, is considered a crucial U.S. ally. Well-spoken and genial, he has strong support in the U.S. Congress as well as within the Bush administration.

But he has had difficulty building a robust central government in a country with a history of tribal rifts and of strong warlord control in many of the provinces.

Karzai is grappling with numerous challenges, including roadside and suicide bomb attacks by the Taliban, mounting casualties to civilians caught in the cross-fire of fighting, and a booming opium trade.

Afghanistan supplies more than 90 percent of the world's opium, and the crop has become a source of cash for the Taliban and a corrupting influence in the government.

AFGHANISTAN INITIATIVE

Lisa Curtis, South Asia expert at the Heritage Foundation, said a top U.S. aim of the talks will be "an opportunity for President Bush to highlight the importance of Afghanistan."

Bush's commitment to Afghanistan can be underscored by "some kind of initiative or talking about increases in the aid amounts," she said. The United States has allocated $10 billion for the Afghanistan effort this year and boosted troop levels.

Afghanistan's woes have helped to fuel criticism of Bush from those who say the Iraq war diverted the post-Sept. 11, 2001, focus away from combating the Taliban and al Qaeda.

Further fueling such criticisms was a report from U.S. spy agencies in July that found Osama bin Laden's Qaeda militants and the Taliban were gaining strength and training new recruits in Pakistan's rugged Waziristan region near the Afghan border.

Democratic presidential candidate Sen. Barack Obama stirred anxiety in Islamabad last week when he said if we were elected he would end the Iraq war and redouble efforts to fight al Qaeda, even if it meant attacking inside Pakistan.

Bush has sought to emphasize the role of al Qaeda in Iraq to push back against the argument that Iraq is a distraction.

"Neither Afghanistan nor Iraq are mutually exclusive battles in the war on terror," said White House National Security Council spokesman Gordon Johndroe.

At a White House meeting last September with Bush and Pakistani President Pervez Musharraf, Karzai raised concerns about Musharraf's truce with tribal leaders in the Waziristan border region. U.S. officials have acknowledged the truce was a failure.

Bush has remained supportive of Musharraf and has said he believes the Pakistani president is committed to tackling the problem of militants in the border region.

(Additional reporting by Paul Eckert)

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