* Sunni-Shi'ite flare-up in port city could be bad omen
* Three killed when dispute over Shi'ite flags escalates
* Syrian war threatens to crack open Lebanon's sectarian rifts
By Oliver Holmes
SIDON, Lebanon, Nov 12 (Reuters) - If the war in Syria does tip its precariously balanced neighbour Lebanon into sectarian conflict, as many fear, this could be the way it starts.
A year ago, a few Shi'ite flags in a mostly Sunni Muslim part of the port city of Sidon might not have caused much reaction.
But on Sunday, when supporters of the Sunni cleric Ahmad al-Assir tried to tear down religious and political banners put up by Shi'ites to mark their holy day of Ashura this week, they triggered a shootout in which three people were killed.
A day after the battle, the worst exchange of fire in the mostly Sunni city since the 1975-90 civil war, shops remained closed and soldiers with machineguns were inspecting identity cards and looking inside cars at hastily erected checkpoints.
The incident highlights how tensions between Sunnis and Shi'ites in Lebanon have grown since the start of Syria's uprising, which pits mostly Sunni Muslims against the establishment of Syrian President Bashar al-Assad, most of whom belong to the Alawite sect, an offshoot of Shi'ite Islam.
With memories of their own civil war still vivid, leaders of Lebanon's sectarian-based political factions have until now tried to minimise points of friction to avoid upsetting the careful balance that has kept the peace since 1990.
But the assassination of a top anti-Syrian intelligence officer in Beirut last month, blamed by anti-Assad groups on Syria and its Lebanese ally Hezbollah, has left Sunnis in particular feeling they have lost an important protector.
On Monday, Sunni gunmen, some of them masked, paraded with Kalashnikovs and grenade launchers as hundreds of Assir supporters, some carrying Islamist flags, attended the burial of their side's two dead at the entrance to Sidon.
The fighters said there would be no action unless Assir gave an order. "We don't have plans for Ashura," said one.
Until a year ago, Assir was relatively unknown. But his fiery speeches against powerful Shi'ite leader Sayyed Hassan Nasrallah and protests against Assad have won him the allegiance of many devoted Lebanese Sunnis, especially hardliners.
His office is on a hill in a Sunni area of Sidon called Abra. Several blocks around his mosque were barricaded off by heavily armed men on Monday, many of them clearly identified as conservative Sunnis by their beards and shaven heads. Some carried walkie-talkies.
"Over the past few days we noticed that Hezbollah had started putting Hassan Nasrallah's flags in our areas," said Assir, easily identifiable by the foot-long greying beard that he wears over his black jalabaya robe.
He told Reuters that when his supporters tried to stop this, they had been attacked by the Shi'ite gunmen.
Some witnesses and residents said Assir's supporters had been armed, but he said: "We went peacefully to those areas."
Security sources said Hezbollah fighters, the only faction allowed to keep arms under Lebanon's post-war settlement, had not taken part in the fighting.
Hezbollah leader Sayyed Hassan Nasrallah, a strong supporter of Assad and backed by Shi'ite Iran, said the events in Sidon were "unfortunate" and aimed at creating strife.
But Sheikh Maher Hamoud, Shi'ite imam of the al-Quds mosque in Sidon and close to Hezbollah, went further, saying Shi'ites in the city were entitled to celebrate their rituals. Ashura, with its scenes of collective grieving, is perhaps the most emotive of these.
"What right does anyone have to rip down flags in an area? A quarter of that area are Shi'ites. They have lived there for years and should be allowed to put up flags," Hamoud said.
Ashura marks the killing of Imam Hussein bin Ali, grandson of the Prophet Muhammad, by Umayyad forces at the battle of Kerbala in Iraq in 680, the culmination of a power struggle that ushered in the great Sunni-Shi'ite divide which still shapes the Middle East's political map.
Sami al-Zain, head of the Harat Saida district where the clashes took place, told Reuters in his offices that the area had rarely had problems until Assir showed up.
"We have Sunnis, Shi'ites, Druze, Palestinians. What else? We have some Christians; there is a church down the road," he said.
"Yesterday, someone was trying to create strife. Yesterday we had this crazy Assir," he said, sitting in front of a picture of Nabih Berri, speaker of parliament and head of the Hezbollah-aligned Shi'ite Amal movement.
Zain laughed off Assir's claim to non-violence: "How can you say you're peaceful when you all carry guns?"
At the Harat Saida roundabout, the yellow and green Hezbollah flag still flew high on Monday, and another marking Ashura fluttered from trees. Soldiers ushered cars through the area.
Assir said the situation in Sidon and in Lebanon had changed since the killing of Wissam al-Hassan, who was leading an investigation that implicated Syria and Hezbollah in the 2005 assassination of former prime minister Rafik al-Hariri, a Sunni.
Hezbollah denies involvement in either attack, but many Sunnis feel they have lost another bulwark against Syrian and Shi'ite influence.
"Before, the situation was different ... Wissam al-Hassan hadn't been killed," Assir said.
At the funeral on Monday, Assir's men chanted: "No to Hezbollah and No to Berri!"
The cleric said there would be no retaliation for the death of his men for now, but added darkly: "Our blood is very expensive."