* France began airstrikes against rebels last week
* Ground war set to escalate, French encircle rebels
* Algerian intel about Ansar Dine was wrong -diplomats
By Louis Charbonneau
UNITED NATIONS, Jan 18 (Reuters) - French troops' initial clashes with Islamist militants in Mali have shown that the desert fighters are better trained and equipped than France had anticipated before last week's military intervention, French and other U.N. diplomats said.
The realization that the fighting could be bloodier than anticipated in the weeks -- or months -- ahead might make Western countries even more reluctant to get involved alongside France. French officials, however, hope it will rally their allies behind them, diplomats say.
"The cost of failure in Mali would be high for everyone, not just the people of Mali," an African diplomat said on Thursday. Like the other diplomats, he spoke on condition of anonymity to discuss sensitive military and diplomatic issues.
The seizure of dozens of hostages in neighboring Algeria, where Algerian troops launched a military operation to rescue the captives from "diehard" Islamist militants at a desert gas plant, also raises the possibility that Islamist violence could snowball beyond Mali's borders.
The diplomats were speaking after French forces had their first encounters with Islamist fighters in recent days. The ground war appeared headed for escalation on Thursday as French troops surrounded the town of Diabaly, trapping rebels who had seized it three days ago.
"Our enemies were well-armed, well-equipped, well-trained and determined," a senior French diplomat said.
"The first surprise was that some of them are holding the ground," he said, adding that others had fled during six days of French air strikes aimed at halting the militants' offensive and preventing the fall of Mali's capital, Bamako.
French, Malian and African forces are facing off against an Islamist coalition that includes al Qaeda's North African wing, AQIM, and the homegrown Ansar Dine and MUJWA militants. The motley mix of Tuareg rebels, Islamists and foreign jihadists has been united by the threat of foreign military intervention, which the Security Council called for last month.
Some of the militants are believed to have been trained and armed by the government of late Libyan leader Muammar Gaddafi, who was ousted and killed by rebels in a 2011 civil war.
FOG OF WAR
A number of diplomats said it was clear that the initial French assessments of the militants had underestimated their strength. It is a view that French officials do not dispute.
"They are better trained, I think, than the French had anticipated at the beginning and are fighting harder than had been anticipated," a senior Western diplomat said.
Other envoys noted that the 2,000 promised Chadian troops, who are known for their desert-fighting expertise, have yet to arrive and it remains to be seen how they will perform.
Diplomats said that the overly optimistic assessments of the Islamists were understandable in what several envoys described as "the fog of war," where clarity is rare and precise information and accurate intelligence are often hard to come.
The senior Western diplomat said there was nothing to suggest the French were being overwhelmed on the ground and pointed to the achievement of Paris' initial objective, which was halting the militants' offensive.
"They feel that they took the decisions that they had to take in the short term," he said.
"But inevitably in these situations you never quite know what the outcome's going to be, or what the consequences are going to be, or what the exit strategy is. But they have been successful in protecting Bamako, which could have fallen."
Nicolas van de Walle, a professor at Cornell University, said the rebels have demonstrated "superior knowledge of this very difficult terrain, their ability to slip across foreign borders and their impressive mobility."
French forces total 1,400 troops, Defense Minister Jean-Yves Le Drian said on Thursday, and their numbers are expected to rise to 2,500. Foreign African troops have also begun arriving.
INCORRECT ALGERIAN INTELLIGENCE?
Northern Mali fell under Islamist control after a March 2012 military coup in Bamako triggered a Tuareg-led rebel offensive that seized the north and split the West African nation in two.
Last month, the U.N. Security Council approved an African-led force to help Mali's government reclaim the north. That force is to be comprised of up to 3,300 troops, but is not expected to be deployed in the north before September.
The French and others have called for an acceleration of the force's deployment in light of the emergency Mali is facing.
So far the entire Security Council - including the typically skeptical Russians - are supporting the French, diplomats say.
Despite that diplomatic backing, envoys say that Western nations have offered France little of the logistical support it has requested. The United States agreed to France's request for airlift capacity for troops, and U.N. diplomats said Paris was still hoping Washington can provide drones and aerial refueling capacity.
The surprises about the Mali conflict have not been limited to the militants' behavior on the battlefield, diplomats say.
Before the Islamists launched their offensive earlier this month and threatened to take Bamako, Algerian intelligence had concluded that elements of Ansar Dine would be open to negotiations and would not fight alongside AQIM and others.
That assessment proved incorrect.
"It was believed that there were links between Ansar Dine elements and elements of Algerian intelligence," a diplomat told Reuters. "But those links appear to have vanished."
Algeria's U.N. mission did not respond to a request for comment.
The Algerians are allowing their former colonial masters, the French, to use their airspace, which U.N. diplomats say is no small matter and shows Algeria's commitment to supporting France's efforts in Mali.
Algeria has much at stake, given that it does not want the Islamists in Mali to retreat to its territory, where they could carry out operations like the one on Wednesday in which militants seized dozens of hostages.