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    UPDATE 1-Killing of security chief raises fears for Lebanon

    (Adds army statement, updates casualty figures)

    BEIRUT, Oct 22 (Reuters) - The Beirut car bomb that killed a

    top Lebanese security official will probably prove to be the

    most destabilising attack in Lebanon since the 2005

    assassination of former prime minister Rafik al-Hariri.

    What is less clear - and this is something that instils fear

    in a society still scarred by its 1975-90 civil war - is whether

    the attack was a reprisal or the start of a campaign of violence

    by Damascus and its allies, suspected by many Lebanese of

    trying to spread Syria's conflict across its borders.

    Lebanon, which has yet to fully overcome its own wartime

    sectarian divisions, is too fragile to withstand being enveloped

    by a Syrian conflict that is beginning to mirror Lebanon's own

    slide into fratricidal bloodletting.

    Wissam al-Hassan, the security official who died with seven

    others on Friday, was buried with full honours in an emotional

    state funeral on Sunday at the Rafik al-Hariri mosque, the heart

    of the former premier's reconstruction legacy in central Beirut.

    The funeral turned into a political rally against Syria and

    its local allies in Lebanon.

    Hassan is thought to have been targeted because in August,

    after a carefully planned sting operation, his Internal Security

    Forces intelligence unit arrested a former Lebanese cabinet

    minister close to Syrian President Bashar al-Assad.

    The minister, Michel Samaha, is charged with transporting

    Syrian-assembled bombs to launch attacks on sectarian targets in

    Lebanon. Two Syrian officers, including General Ali Mamlouk,

    were indicted with Samaha in a humiliating blow to Assad and an

    unprecedented move against Lebanon's dominant neighbour.

    EVIDENCE UNCOVERED

    Hassan also led the investigation into Hariri's murder and

    uncovered evidence that implicated Syria and Hezbollah, although

    both deny the charge. An international tribunal accused several

    Hezbollah members of involvement in the murder.

    "There is a probability that this will be the start of a new

    period in which we will see more assassinations, bombings and

    other problems," said Sarkis Naoum, a columnist and Syria

    expert.

    "Sectarian incitement is on the rise in the country and the

    killing of Wissam al-Hassan brought things to a head. We may be

    entering a very dangerous cycle. Anything might happen."

    "It is not possible for the Syria conflict not to have

    implications on Lebanon. The Lebanese have entered the Syria war

    - one side is with the Assad regime and another is against it.

    They are fighting each other by proxy," Naoum said.

    Tiny Lebanon, with its combustible sectarian mix, is being

    dragged into the Syria crisis with its rival Shi'ite and

    Sunni Muslims fighting on opposite sides.

    Lebanon's Shi'ite Hezbollah group backs Assad, a member of

    the Shi'ite-based Alawite sect, in his fight against the

    Sunni-led insurgency. Lebanon's Sunnis and allied Sunni powers,

    notably Saudi Arabia and Turkey, support the Sunni rebels.

    The killing of thousands of Sunnis in Syria has angered

    Sunnis in Lebanon and across the region.

    Hassan's attacker did more than just kill Lebanon's most

    powerful intelligence brain, who collected data on all major

    players and uncovered several plots in recent years. The killer

    performed a public execution that sent a warning to all those

    who dared challenge Syria in Lebanon.

    INNER CIRCLE

    Some analysts said the devastating attack against Hassan's

    anti-Syria investigative establishment bore important

    similarities to the blast that targeted Assad's inner circle of

    security officials in Damascus in July.

    "Whoever did this attack wanted to deliver a message that

    they can reach anybody, that they can hit the highest level of

    intelligence," said Beirut-based commentator Rami Khouri.

    "Whoever did it wanted to say 'we can still strike'."

    Opposition politicians and ordinary people at Martyrs'

    Square saw Syria's hand in the bombing.

    "Wissam al-Hassan has one enemy - Bashar al-Assad," said

    Beirut MP Nouhad Mashnouq, a leading member of the March 14

    opposition bloc led by Saad al-Hariri, son of the slain

    ex-premier.

    Mashnouq said the cases Hassan had brought against Samaha

    and Mamlouk were actions against Syria unprecedented in the

    history of Lebanon.

    Despite the accusations from Lebanese politicians, both the

    Assad government and Hezbollah condemned the bombing.

    The immediate destabilising effect of Friday's blast can

    already be seen on the streets.

    Angry mourners tried to storm Prime Minister Najib Mikati's

    offices in Beirut after the funeral, breaking through a security

    barrier and scuffling with police who fired in the air. Four

    people have been killed in clashes in the northern city of

    Tripoli and five people were wounded in Beirut on Monday.

    "Mikati leave, get out," chanted hundreds of protesters.

    They also chanted slogans against Assad, whom they accused of

    being behind the killing of Hassan.

    The protesters blame Mikati's pro-Syrian and

    pro-Iranian-dominated coalition government for failing to

    provide security or respond effectively to the killing.

    UNREST SPREADING

    In a strongly worded statement on Monday, the Lebanese army

    said the nation faced a critical time and pledged to act

    decisively to "curb tensions, stamp out violations and prevent

    Lebanon being transformed again into a place for regional

    score-settling and stop the exploitation of Hassan's murder."

    It warned that targeting public or private institutions

    crossed a "red line", and it would respond.

    Displeasure with Mikati came as spreading unrest raised

    fears among Lebanese that their country could slide back into

    the sectarian strife that haunted them for decades.

    Mikati, a Sunni Muslim whom many see as unwilling to

    confront Hezbollah, said he had offered to step down, but that

    President Michel Suleiman asked him "to stay on to avoid letting

    Lebanon slide into turmoil".

    Syria's civil war is already being played out on the streets

    of Tripoli in northern Lebanon, where fighting has erupted

    between Sunni fighters and Alawites.

    The Syrian unrest has often spilled into Lebanese border

    villages with Assad's forces shelling them, saying they were

    being used by rebels to smuggle in fighters and arms.

    Officials close to Hassan, who had been under threat since

    he pushed for Samaha's arrest, said he was using more than one

    safe house and that only two close associates, including the one

    who died with him, knew about his movements.

    They suspect that Hassan's movements were followed after his

    return on Thursday night from a trip abroad.

    "There is a contentious history between Wissam al-Hassan and

    Syria, Iran and their Lebanese allies (Hezbollah)," said one

    security source, who declined to give his name. "All the

    espionage and intelligence services of the world are present in

    Lebanon and they pay huge sums of money for information and

    there are many Lebanese guns for hire."

    "TERRIBLE BUT NOT UNEXPECTED"

    Khouri, a Middle East affairs specialist, said the Hassan

    assassination was a logical extension of what has been happening

    in Syria over the past 19 months.

    "There has been a steady increase in violence and now we are

    going to the next step of assassinations, bombings and maybe

    clashes. It is terrible but it is not unexpected," he said.

    Hassan was killed because he was leading the investigation

    that led to the prosecution of some important figures, he said.

    "It certainly reminds people of a string of assassinations

    that followed Hariri's killing," Khouri said.

    Some analysts said the perpetrators of the bombing - which

    also wounded more than 80 - clearly aimed to push Lebanon into a

    new round of violence. But although sectarian tensions are high,

    Lebanese factions have no desire to return to civil war.

    Despite persistent calls by Hariri and others for Mikati to

    resign, many politicians and Western envoys sought compromise,

    arguing that high-level resignations and political turmoil in

    Lebanon were precisely what Hassan's killers intended.

    Lebanon's sectarian-based politics are further complicated

    by regional hostility. While the main Lebanese opposition has

    long been aligned with Washington and Saudi Arabia, Mikati's

    governing coalition is endorsed by Iran and Syria.

    The bombing also heightened fears among Western powers -

    which have criticised Assad and called on him to step down -

    that the Syria war could ignite conflict across the region.

    Augustus Richard Norton, a Middle East specialist at Boston

    University, said it was too early to say who carried out the

    bombing.

    "However, there is no doubt that al Hassan's death will

    bring smiles to the face of Bashar al-Assad and his cohorts," he

    wrote in a commentary.

    Hassan, a Sunni who opposed Syria and Hezbollah, was laid to

    rest next to Rafik al-Hariri, whose assassination in a similar

    manner seven years ago sparked widespread protests that

    ultimately forced Syria to withdraw its troops from Lebanon

    after 20 years of military and political dominance.

    But despite the military pull-out, Assad retained influence

    through his Lebanese allies in Hezbollah.