By Kathy Finn

NEW ORLEANS, Aug 28 (Reuters) - Three years after Hurricane Katrina's waters smashed through New Orleans' aging levees and inundated its streets, the city's flood control systems could face a new test as a potentially powerful storm inched closer on Thursday.

City residents, many of whom are still recovering from the devastation of Katrina, now face the possibility of evacuating to escape the expected landfall next week of Tropical Storm Gustav, which could strengthen into the most powerful hurricane to hit the U.S. Gulf Coast since 2005.

U.S. officials warned that gaps remain in New Orleans' flood control system despite improvements after Katrina, and areas hardest hit three years ago remain vulnerable.

"There are gaps in the system, but the system is stronger and better than ever," said Bill Irwin, program manager for the U.S. Army Corps of Engineers, which is charged with the upkeep of the city's levee system.

Louisiana Gov. Bobby Jindal said New Orleans residents could see an evacuation order by Friday or Saturday if the storm stays on course, and would begin moving National Guard troops into the city.

"We want people to know that their property will be safe," Jindal said at a news conference, flanked by U.S. Homeland Security Secretary Michael Chertoff and David Paulison, administrator of the Federal Emergency Management Agency.

The storm comes as bad news for a city known both for its celebratory Mardi Gras spirit and its tremendous poverty. City officials shortened a ceremony planned for Friday to mark the third anniversary of Katrina with a symbolic burial service for over 80 unidentified victims of the 2005 storm.

Bells will ring through the city at 9:38 a.m., the time on Aug. 29, 2005, when the city's levees began to give way.

The levees were built to withstand a Category 3 hurricane on the five-step Saffir-Simpson scale with wind speeds over 111 miles per hour (178 kph), but proved to be no match for Katrina, which came ashore at that strength.

Katrina's waters flooded 80 percent of New Orleans, killed 1,500 people along the Gulf Coast and caused at least $80 billion in damages.

Rebuilding the levees is still a "work in progress" and not expected to be complete until 2011, Irwin said.

As a stopgap, the agency was rushing to install temporary flood-fighting structures along the Inner Harbor Navigation Channel in New Orleans, which was devastated by the 2005 storm.

UNCERTAIN LANDFALL

Tropical Storm Gustav hit Jamaica with near hurricane-force winds on Thursday after killing at least 59 people elsewhere in the Caribbean.

Weather forecasters say Gustav could make landfall anywhere from the Florida Panhandle to Texas.

But one of the storm's most likely tracks is directly toward New Orleans, and forecasters say it could strengthen into a powerful hurricane.

"We're going to see Gustav explode into a major hurricane," said Jim Rouiller, a meteorologist at Planalytics, a private forecasting group. "Louisiana is basically under the gun."

He said Gustav could grow to Category 4 strength with wind speeds over 131 mph (210 kph).

A Category 3 storm could bring a storm surge of up to 20 feet (6 metres) crashing into Lake Pontchartrain, north of New Orleans, he added.

As Gustav loomed, federal officials swarmed into the city, eager to show their preparations after being criticized for a slow, fumbling response after the 2005 hurricane left many residents stranded in a desolate city with little aid.

During Katrina, many city residents ignored mandatory evacuation orders.

German Machado, executive chef at Tony Moran's Restaurant in the French Quarter, said he did not evacuate for Katrina and plans to stick around this time too.

"I have no intention of evacuating," Machado said, speaking from a barstool at the Old Absinthe House bar on Bourbon Street. "But I have to say, I don't think our levees are prepared yet for a major storm." (Additional reporting by Randall Mikkelsen in Washington) (Editing by Chris Baltimore)

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