* New sign of Kurd-Arab tension
* Town suffered from Saddam's 'Arabisation' campaign
By Muhanad Mohammed
JALAWLA, Iraq, Sept 9 (Reuters) - Hundreds of Kurdish soldiers have moved into disputed areas of Iraq's volatile Diyala province to provide security in a sign of continuing tensions between Kurds and Arabs as U.S. forces prepare to leave Iraq at year-end.
Iraq's disputed territories, particularly the area around the northern oil-rich city of Kirkuk, are considered potential flashpoints for future conflict when American troops depart under a 2008 bilateral security agreement.
Two battalions of Kurdish peshmerga, about 1,300 soldiers, recently began patrols alongside the Iraqi army in the town of Jalawla and surrounding areas usually controlled by Iraqi police and soldiers. The force will increase to about 2,400.
Kurdish officials said Kurds in the troubled region, a volatile mix of Arabs, Kurds and Turkmen, do not trust Iraq's police and army, which are dominated by Arabs.
"Jalawla's problem is the Iraqi security forces. They are not working well. They deliberately neglect their duties," Colonel Nuri Abdul Karim, commander of a Kurdish battalion, said at his headquarters on Diyala's border with Kurdistan.
Now wary allies, Iraqi and Kurdish troops are longtime foes. Kurds fought guerrilla battles against Iraqi forces and took advantage of the 1980s Iran war to attack Iraqi positions.
Jalawla, a town of about 80,000 Kurds, Arabs and Turkmen just south of Diyala's border with Iraq's semi-autonomous northern Kurdish region, has long experience with ethnic tension. It was a target of Saddam's "Arabisation" campaigns, when Kurds were expelled and replaced by Arabs.
While bombings and other attacks have ebbed following the sectarian slaughter that pushed Iraq to the brink of civil war in 2006-07, violence has remained stubbornly high in Diyala as Sunni Islamist al Qaeda and other groups wage turf wars.
Peshmerga spokesman Jabbar Yawar said the Kurdish soldiers were dispatched to the Jalawla, Saadiya, Qara Tappa and Mandali areas at the request of Iraq's central government. "Kurds in those areas are being targeted. Recently several Kurdish officials were assassinated in Jalawla and Saadiya," he said.
Iraq's fragile government, a Shi'ite-led coalition of Sunni, Shi'ite and Kurdish factions, has its hands full with public disenchantment over weak basic services, a lethal insurgency and a pending decision over whether U.S. troops should stay.
Kurds and Arabs have long-standing disputes over land and oil -- particularly in Kirkuk, which sits atop some of the world's largest oil reserves. Many Kurdish officials want American troops to stay after December.
The presence of Kurdish troops in areas under the official control of Iraqi forces is not unique. The two armies have joint units in parts of Nineveh province and Kirkuk.
At the outset of the 2003 invasion that ousted Saddam Hussein, peshmerga took up positions in Kurdish areas of Diyala. But in 2008, the U.S. and Iraqi armies launched an operation to root out insurgents and asked the Kurds to leave, promising Iraqi troops would protect residents.
"The withdrawal of Kurdish forces from Jalawla previously was a strategic mistake. Their return now has made the Kurdish population feel more secure," said Basheer al-Jalawlai, a Kurdish member of the Jalawla municipal council.
How deep is the mistrust?
One Kurdish official said when he meets Iraqi security chiefs at their offices, he tells his driver not to leave his car alone for fear a bomb will be planted by Iraqi forces.
"I don't trust the Iraqi security forces because some of their staff collaborates with terrorists," he said. "Most of the assassinations take place near Iraqi forces' checkpoints."
A senior security official who asked not to be named said violence in Jalawla was on par with other areas of Diyala. Sixteen Arabs had been killed and 21 wounded since Jan. 1, compared to eight Kurds killed and seven wounded, he said.
"The biggest challenge right now is that residents don't cooperate with us. They have more loyalty towards their ethnic groups."
Baghdad University professor Haider Hameed said Kurds see the moment as ripe to extend their influence.
"Kurds have a goal to recover these areas for Kurdistan. They chose this time in their conviction that the central government does not have the ability to stop them," he said.
The reaction of Diyala residents to the increased Kurdish military presence has been largely along ethnic lines.
"I welcome any force that protects us. The peshmerga presence is to restore security," said Hussain Ajmi, a 47-year-old Kurd selling vegetables at a booth at Jalawla's main market.
Mizahim Abd Salih, a 43-year-old Jalawla Arab, said politics, not security, was behind the Kurdish troop presence.
"We will face rising violence in the coming days. Sending the peshmerga is not to protect the Kurds. It is a political goal to dominate the area and merge it to Kurdistan," he said. (Reporting by Muhanad Mohammed; Editing by Jim Loney and Jon Hemming)