* Mopping-up operations in central Mali town of Diabaly
* Algeria hostage-taking is apparent revenge for Mali campaign
* More West African troops arrive in Mali's capital Bamako
* Nigeria approves bigger military contingent
By Bate Felix and Tiemoko Diallo
BAMAKO/MARKALA, Mali, Jan 18 (Reuters) - French and Malian soldiers wrested control of the central town of Diabaly from Islamist rebels on Friday, its mayor said, and West African reinforcements arrived in Bamako to take on the insurgents dominating the north of Mali.
France, warning that Islamist control over Mali's vast desert north threatens the security of Africa and the West, had targeted Diabaly in an eighth day of air strikes aimed at dislodging hardened al Qaeda-linked fighters there.
"Soldiers are in the town carrying out mopping up operations," Diabaly Mayor Oumar Diakite told Reuters by telephone. "There are lots of burned-out vehicles that the Islamists tried to hide in the orchards."
A commander in the Malian army in nearby Markala said ground forces were operating in Diabaly, which lies about 360 km (220 miles) northeast of Bamako, but could not confirm that the town, seized by Islamists on Monday, had been recaptured.
If officially confirmed, it would be a second military success for the French-led military alliance after Islamists on Thursday night abandoned Konna, to the north of the central garrison town of Sevare.
Armed with weapons seized from Libya after the 2011 fall of Muammar Gaddafi, the Islamist alliance of al Qaeda's North African wing AQIM and home-grown Malian groups Ansar Dine and MUJWA has put up staunch resistance.
The progress of French and Malian troops has been slowed also because insurgents had taken refuge in the homes of civilians, residents said.
French President Francois Hollande ordered the intervention on the grounds that the Islamists could turn northern Mali into a "terrorist state" radiating threats beyond its borders.
Despite threats from militants to attack French interests around the world, France, which now has 1,800 troops on the ground in Mali, has pledged to keep them there until stability returns to the poor, landlocked West African nation
In the first apparent retaliatory attack, al Qaeda-associated militants took dozens of foreigners hostage on Wednesday at a natural gas plant in Algeria, blaming Algerian cooperation with France. Algerian security sources told Reuters about 60 foreigners were still being held at the facility where some 30 hostages were killed during an army attack on Thursday.
ECOWAS TROOPS POUR IN
A total of 2,500 French troops are expected in Mali but Paris is keen to swiftly hand the mission over to West Africa's ECOWAS bloc, which in December secured a U.N. mandate for a 3,300-strong mission to help Mali recapture its north.
The first contingents of Togolese and Nigerian troops arrived in Bamako on Thursday. Nigerien and Chadian forces were massing in Niger, Mali's neighbour to the east.
Nigerian President Goodluck Jonathan, in a letter to the Senate requesting approval to raise Nigerian's force to 1,200 soldiers, said Mali was a threat to the whole of the region.
"The crisis in Mali, if not brought under control, may spill over to Nigeria and other West African countries with negative consequences on our collective security, political stability and development efforts," he said. His request was approved.
The scrambling of the U.N.-mandated African mission, which previously had not been due for deployment until September, will hearten France, the former colonial power in Mali. With Chad promising 2,000 soldiers, African states have now pledged more than 5,000.
The head of Malian military operations, Colonel Didier Daco, said that Islamists were abandoning their 4x4 pick-up trucks, which made them vulnerable in the desert to French air strikes, to fight in the bush on foot.
Military experts say France and its African allies must now capitalise on a week of hard-hitting air strikes by seizing the initiative on the ground to prevent the insurgents from withdrawing into the inaccessible desert and reorganising.
"The more painful the militants can make the push into northern Mali and subsequent pacification effort, the more they can hope to turn French, Western and African public opinion against the intervention in the country," global intelligence consultancy Stratfor wrote in a report on Friday.
MALIANS WELCOME FRENCH FORCES
With African states facing huge logistical and transport challenges, Germany promised two Transall military transport aircraft to help fly in their soldiers.
Britain has supplied two C-17 military transport planes to ferry in French armoured vehicles and medical supplies. The United States is considering logistical and surveillance support but has ruled out dispatching U.S. troops.
Reuters journalists travelling north of Bamako saw residents welcoming French troops and, in places, French and Malian flags hung side by side. "Thank you France, thank you Francois Hollande," read one national newspaper headline on Friday.
"They will do it. We're confident that they will do it well," said Bamako resident Omar Kamasoko. "They came a bit late, it's true, but they came. We're grateful and we're behind him."
Mali's recent woes began with a coup in Bamako last March after two decades of stable democracy. In the ensuing chaos, Islamist forces seized large swathes of the north and imposed a severe rule reminiscent of Afghanistan under the Taliban.
The U.N. refugee agency said on Friday that refugees from northern Mali had given horrific accounts of amputations and executions, as well as the recruitment of child soldiers.
The agency said it expected 400,000 Malians to flee the fighting in coming months, placing great strain on the scant resources of the arid, impoverished Sahel region.