* Diary disappeared from murdered magistrate's car
* Diary said to contain evidence of mafia links to politicians
* Trial starts over alleged state-mafia negotiations
By Barry Moody
PALERMO, Sicily, July 25 (Reuters) - More than 20 years after anti-mafia hero Paolo Borsellino was killed by a huge bomb, his missing diary is still at the heart of one of Italy's murkiest and most enduring mysteries.
Borsellino kept the red police diary always at his side, even in bed, and used it for jotting down evidence after another powerful bomb killed his friend and fellow magistrate Giovanni Falcone in May 1992, 57 days before his own death at age 52.
The two men are Italy's biggest modern heroes, a picture of them together often seen on posters on city streets.
Now the contents of the red diary are at the centre of a trial that alleges a dark pact was struck between the state and the mafia, a pact that Borsellino's bereaved brother says stained Italy's "second republic" at its very birth.
Borsellino would not allow even his family to read the diary for fear it would put them in danger during one of the bloodiest eras in the history of Sicily's criminal society.
His brother and Palermo prosecutors believe Borsellino was murdered because he had discovered secret negotiations between the state and mafia boss of bosses Salvatore "the Beast" Riina, brutal capo of the Corleonesi clan.
They say the negotiations were aimed at stopping mafia attacks against state targets by agreeing to more lenient treatment for jailed gangsters and lighter sentences.
Several of the mafia's alleged demands have been met since 1993, including the closing of the bleak Pianosa and Asinara island prisons where many mobsters served time, though no connection has been proven.
Now 10 defendants, including former interior minister Nicola Mancino, three former senior paramilitary Carabiniere officers and four mafiosi including Riina, who has been in jail serving multiple life terms since his 1993 capture, are on trial in Palermo facing various charges over the alleged negotiations.
Mancino hotly rejects charges of false testimony, and former Carabiniere general Mario Mori and the other police deny entering negotiations.
Nearly 200 witnesses are due to testify, including sitting President Giorgio Napolitano, in a case prosecutors say will take several years.
After the death of Borsellino, Cosa Nostra stepped up the pressure with unprecedented mainland attacks in 1993 on cultural and church targets including Florence's Uffizi Gallery. Ten people were killed in Rome, Milan and Florence.
The attacks then abruptly stopped. Prosecutors and Borsellino's brother Salvatore say that was because Italian officials agreed to a deal. An alleged written list of Riina's demands is part of the evidence in the Palermo trial, though he says negotiations were initiated by state officials.
Salvatore Borsellino, now 71, has spent the last 20 years campaigning for the truth about his older brother's death. He says the negotiations with the mafia are the "keystone" of the so-called second republic since 1992.
"Without the truth it is not possible to understand the last 20 years of our country. Without the truth you cannot wash away the original sin of this republic founded on the blood of these massacres," he told Reuters in an interview.
Vittorio Teresi, deputy leader of the pool of Palermo magistrates prosecuting the so-called Mafia-State trial, also emphasised the lasting importance of the case for modern Italy.
SEARCH FOR TRUTH
"These were the most glaring, grave, overwhelming events for a democratic country, and it is in the interests of this nation to find the truth about what happened," he told Reuters in the office once used by Borsellino in Palermo's Palace of Justice.
"When the talks reached a crucial point, Cosa Nostra reacted with dynamite, with slaughter, so that it was in truth not a negotiation but blackmail. The effect was the opposite of that intended by the state."
Another Sicilian magistrate who asked not to be identified said the trial was vitally important for Italy's future because it could break a tradition of cooperation between the mafia and politicians going back to the 19th century.
"After all that has happened in Italy, the moment has arrived when you must decide which side you are on. For too long people in Italy had an ambiguous attitude; they thought they could be on both sides."
Teresi and other Palermo prosecutors have received repeated death threats, forcing an increase in their security escorts and indicating that even 20 years later those events are still dangerously relevant.
"The more threats increase, the more we are convinced we have touched a vital nerve, that we are on the right road," said Teresi.
Salvatore Borsellino and prosecutors believe Paolo recorded what he discovered in his diary and was killed as he was on the point of denouncing the contacts between bloodstained gangsters and authorities.
Paolo's wife and children said he put the diary into his brown leather briefcase when he left to visit his sick mother at her apartment in Palermo's Via D'Amelio on July 19. As he rang the bell a car bomb killed him and his escort of four policemen and one policewoman, leaving the street like a war zone.
"My mother heard the sound of the bell and then the explosion that took her son away," Salvatore told Reuters. The mafia had tapped her phone so they knew when Paolo would come.
More than a decade later a photo came to light showing a Carabiniere officer walking away from Borsellino's car after the blast carrying the briefcase. Later it was found back on the seat of the car but the diary was not inside.
Salvatore believes shadowy agents of Italy's secret services were involved in the bombing and have used the diary to blackmail senior officials ever since.
Riina also told prison officers earlier this year that the secret services, often accused in Italy in the past of involvement in right and left-wing terrorism, were implicated and present in Via D'Amelio.
In 2007 Salvatore founded the "Red Diary Movement", a web-based organisation that now has 8,000 members. Every year it demonstrates on the anniversary of the bombing at the scene, which is marked by an olive tree hung with tributes.
The killings of Falcone and Borsellino and attacks on the Italian mainland came as Italy's political establishment was being torn apart by the "Bribesville" scandal, which eventually swept away the Christian Democrat party that had dominated the postwar "first republic", opening the way for media magnate Silvio Berlusconi to begin his long domination of politics.
Falcone's murder with a bomb so powerful it tore up a long stretch of airport motorway, also killing his wife and three police guards, shocked Italy at a time when parliament was electing a new head of state.
The outrage torpedoed the chances of late Christian Democrat politician and seven times prime minister Giulio Andreotti, who had been repeatedly accused of mafia links.
Palermo prosecutors say the mob's intimidation campaign had begun even before Falcone's death with the murder of Andreotti's point man in Sicily and former Palermo mayor Salvo Lima.
Lima is said to have been killed because he and Andreotti had failed to help the mafia win appeals against jail terms handed down by a landmark "maxi trial" that convicted 360 mobsters in 1987. Falcone was the architect of that trial.
"It was a warning to politicians who could not keep their promises," Teresi said.
Suspicions about the mafia negotiations remained vague until four years ago when Massimo Ciancimino, son of long-time Palermo city official and convicted mafioso Vito, was arrested for laundering his late father's missing fortune.
Ciancimino told investigators he had been the messenger between his father, the mafia and senior police officers in which the mob offered to stop the attacks in exchange for concessions. Several other informers including the hitman who detonated the bomb that killed Falcone also say there were negotiations.
In 2012 a Florence court that tried 15 mafia gangsters over the Uffizi Gallery bombing said there had definitely been negotiations that were initiated by state officials. (Editing by Will Waterman)