* Mediators work to remove al Qaeda presence
* Tribesmen said to lay down arms after amnesty offer
* U.S. urging all sides to find negotiated way out
By Suadad al-Salhy
BAGHDAD, Jan 10 (Reuters) - The prospect of an imminent Iraqi army assault on Falluja receded on Friday as negotiators tried to work out a deal under which al Qaeda militants who seized the city 10 days ago would give way to Sunni Muslim tribal leaders.
Military and local officials said the tanks, artillery and troops around the city 70 km (44 miles) west of Baghdad would not attack while efforts to end the standoff peacefully were under way.
Militants of the al Qaeda-linked Islamic State of Iraq and the Levant (ISIL), which is also fighting in neighbouring Syria, took control of Falluja and parts of nearby Ramadi on Jan. 1 with the help of sympathetic armed tribesmen.
At least 60 civilians, militants and tribal fighters have been killed in the two cities since the trouble erupted, 43 of them in Ramadi and 17 in Falluja, health officials in Anbar province said. They had no word on military casualties.
The militants' incursion was a major challenge to Prime Minister Nuri al-Maliki's Shi'ite-led government, which is battling a growing ISIL presence in Sunni-dominated Anbar.
The vast western desert region was previously the heart of the insurgency after the 2003 U.S. invasion that toppled Saddam Hussein and brought about Shi'ite majority rule.
A senior U.S. official said Washington was encouraging the government to take a "patient, deliberate and restrained" approach to the Falluja crisis. "I don't anticipate a move into the city by the armed forces," he told reporters on Thursday.
The U.N. Security Council condemned the ISIL attacks in Iraq and urged the Iraqi tribes, local leaders and security forces in Anbar province to expand and strengthen their cooperation to combat violence and terrorism.
"The Security Council recognizes that Iraqi security forces, local police and tribes in Anbar province are showing great courage as they fight to defeat ISIL in their cities," the 15-member council said in a statement on Friday.
Thousands of Falluja residents have fled in fear of a punishing military assault, but for now the search for a political solution is in the ascendant, the officials said.
Mosques in Falluja opened for Friday prayers for the first time in more than a year. Previously they had taken place at an anti-government protest camp that dispersed last week.
Witnesses said markets also partially reopened and children jogged around in the rain carrying colourful umbrellas.
"The decision was made not to attack the city and to create space for local leaders to defuse the crisis," said Falih al-Essawi, a member of Anbar's provincial council who is involved in the negotiations with community leaders in Falluja.
"The central government totally agreed to this and they fully backed us," Essawi told Reuters by telephone.
Many in Iraq's once-dominant Sunni minority share ISIL's enmity towards Maliki's government, which they perceive as pursuing narrow Shi'ite interests and in thrall to Iran.
But some Sunni tribal leaders are also hostile to al Qaeda - they played a crucial role in helping U.S. troops rout the militants who had controlled much of Anbar at the height of Iraq's insurgency and sectarian conflict in 2006-07.
Finding the middle ground in Falluja's combustible politics is hard going, but tribal leaders, clerics and local government officials agreed on Friday to form a new administration for the city, nominating a new mayor and a new local police commander.
"The city is now stable and we are forming a local council to run the city and provide basic services for residents," said Sheikh Mohammed al-Bajari, one of the leading negotiators.
"I exclude any military strike against Falluja for now, but people are still worried and the government is not trustworthy," the Sunni tribal leader said by telephone.
Armed tribesmen heavily outnumber the militants, security and local officials said, so their attitude is crucial to ISIL's fortunes, as it was while U.S. troops struggled in Iraq.
In Ramadi, several influential tribes have helped the Iraqi army drive the al Qaeda-linked fighters from most of the city, but in Falluja many tribesmen joined forces with ISIL.
However, the Falluja talks appear to be bearing some fruit, with the militants being forced to lie low or melt away. A black al Qaeda flag hoisted over the new Falluja bridge in the western outskirts last night was swiftly removed, a witness said.
ILL-TRAINED FOR ASSAULT
"For the last three days, all our sources report that the militant numbers are dropping," said a senior Iraqi anti-terrorist squad commander who declined to be named. "We have no problem with that. All we want is to get them out of the city."
Tribal fighters have mostly put down their weapons after the government promised not to go after them, military officers and tribal leaders said.
Known as the "City of Mosques", Falluja is a focus for Sunni faith and identity in Iraq. Its 300,000 people endured two devastating U.S. offensives against insurgents in 2004.
The stakes for Iraq, where violence is now at levels not seen for five years, remain high, especially with Maliki seeking a third term in a parliamentary election on April 30.
All sides seem keen to avoid a bloody military showdown.
"Our army is not professional and not trained for such a battle inside the city," said one senior Iraqi army officer. "Getting in would be very costly for the army and civilians." (Additional reporting by Kamal Na'ama in Falluja, Ahmed Rasheed and Alistair Lyon in Baghdad, and Michelle Nichols at the United Nations; Editing by Alistair Lyon, Sonya Hepinstall and Ken Wills)
Our Standards: The Thomson Reuters Trust Principles.