By David Morgan

WASHINGTON, May 15 (Reuters) - The House of Representatives on Thursday voted to scale back President George W. Bush's plan to aid Mexico in its increasingly deadly war on illegal drug cartels.

The so-called Merida initiative -- which Bush proposed last October as a three-year $1.4 billion package providing aircraft, equipment and training -- was initially pegged to give Mexico $500 million in the current fiscal year ending Sept. 30.

Lawmakers instead reduced this year's segment to $400 million in a 256-166 vote on legislation that also expanded benefits for U.S. veterans of the Iraq and Afghanistan wars and lengthened unemployment benefits for American workers.

The Democrat-controlled chamber sought to restrict support for the Mexican military, while extending resources for social institutions including the country's judiciary.

But analysts said the cutback was less than expected and described the vote as an important U.S. gesture toward Mexico.

More than 1,100 people have been killed in Mexico this year as drug gangs fight each other and the security forces.

The House increased a segment of the Merida initiative to combat drug trafficking in Central America, raising it to $61.5 million from the $50 million initially sought by the White House. Lawmakers also added the Caribbean nations of Haiti and the Dominican Republic as beneficiaries.

The Senate has yet to vote on its own Merida legislation. But the Senate Appropriations Committee was expected on Thursday to propose a measure for formal consideration.

Bush administration officials had urged Congress to avoid large cutbacks that could embarrass the government of Mexican President Felipe Calderon at a time when Washington is pressing for closer security ties between the two countries.

The Merida initiative would not give Mexico money outright. Instead, the Mexican government would receive equipment such as helicopters, planes and inspection scanners as well as training for police, prosecutors and judges.

Calderon, a conservative who has sent 25,000 troops and federal police to fight drug cartels across Mexico since late 2006, pledged last week to take back Mexican streets from drug peddlers and gunmen.

Much of his effort has been focused on fighting drug gangs along the U.S.-Mexico border, especially near Texas.

"Though the amount is reduced, the vote conveys to the Calderon government and the Mexican people that both the U.S. administration and Congress are interested in supporting institutions and strengthening law enforcement," said Armand Peschard-Sverdrup of the Center for Strategic and International Studies in Washington.

On Wednesday, the House Foreign Affairs Committee authorized Congress to spend up to $1.6 billion on the Merida initiative overall.

But the panel's authorization bill said the program should be geared more heavily toward supporting the rule of law, with less assistance for the Mexican military, due in part to concern about human rights abuse allegations. (Additional reporting by Richard Cowan, editing by Philip Barbara)

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