* Tunisian Islamists, secular leaders compromise
* Islamist party makes way for technocrat cabinet
* Ennahda likely to win new elections
* Economic reforms remain to be made
By Patrick Markey and Aziz El Yaakoubi
TUNIS, Jan 14 (Reuters) - Thousands of Islamist and secular Tunisians marked the third anniversary of autocrat Zine el-Abidine Ben Ali's downfall on Tuesday, celebrating in the closest the Arab world has to a model transition to democracy.
Crowds jammed Habib Bourguiba boulevard in the capital, Tunis, waving flags and chanting in friendly rivalry near the interior ministry building where protesters once shouted "Leave" to Ben Ali.
Ben Ali's flight from the country on Jan. 14, 2011 inspired uprisings in Libya, Egypt, Yemen and Syria. But while those countries remain in turmoil or outright war, Tunisia's Islamist Ennahda party will compete for power later this year with its secular opponents at the ballot box, not on the street.
Tunisia is close to full democracy after a rocky path to a compromise. Last week Ennahda, a pragmatic Islamist party which won elections two years ago, resigned under a deal to overcome months of deadlock with secular opponents.
This makes way for a technocrat administration which will govern until the new elections - only the second since Ben Ali's fall - and the first with the country's new constitution and electoral board in place.
"No one will question those results now," said Salem Bouzidi, a transport worker wrapped in a red and white Tunisian flag at a rally of the secular opposition. "This is like a new start for everyone, so whoever wins the next election will be the real victor."
As Tunisians celebrated, Egyptians voted on Tuesday on a new constitution after the military last year ousted Islamist president Mohamed Mursi, their only freely-elected leader, leading to heavy loss of life.
Neighbouring Libya faces widespread lawlessness, with its leaders struggling to control some of the militias which overthrew Muammar Gaddafi.
Tunisia still faces huge problems. Islamist militants are threatening attacks while public resentment over unemployment, the high cost of living and economic development may still undo the fragile progress. But compromise is working for now and an assembly is about to finish the new constitution that has mostly won praise for its inclusiveness.
In 2012 Ennahda won the most seats in the new National Assembly in Tunisia's first free election. Many of its Islamist leaders had spent years in jail or exile under Ben Ali.
Divisions soon emerged over the role of Islam in one of the Arab World's most secular countries. The influence of ultra-conservative Islamists also worried secular Tunisians who feared for liberal education and women's rights.
The assassination of two opposition leaders last year by suspected militants tipped the country into crisis, pushing the opposition onto the streets to demand Ennahda resign. After months of wrangling, Ennahda compromised.
"We accepted this whole process. Ennahda handed it over on a silver platter. Ennahda always took responsibility when others didn't," said Solaf el-Hammami, an unemployed student. "But Ennahda will win the next elections, I am sure."
NO ARMY MEDDLING, NO PURGE
Much of Tunisia's success comes from a compromise between two leaders - Ennahda's Rached Ghannouchi and Beji Caid Essebsi, a former official in the Ben Ali regime who became a rallying point for an opposition coalition.
Unlike Iraq after the 2003 U.S.-led invasion and Egypt after its revolt, Tunisia staged no major purge of officials tied to the old ruling party, allowing an easier path to compromise.
Importantly, Tunisia's military also has no history of political meddling and stayed out of the growing crisis. By contrast the Egyptian vote on the constitution may allow a presidential bid by army chief General Abdel Fattah al-Sisi.
A small bomb exploded in Cairo and at least five people were killed in confrontations between Muslim Brotherhood supporters and police on Tuesday, illustrating how far the country is from compromise reached in Tunisia.
Tunisia's new president, Mehdi Jomaa, has promised an independent, technocrat government that will steer clear of the politics until elections. But the former industry minister still faces a challenge in keeping the country stable.
Islamist militants from the banned group Ansar al-Sharia, listed as a foreign terrorist organisation by Washington, have been increasingly active in Tunisia, helped by the chaos in neighbouring Libya where they sought training and arms.
More challenging for Jomaa will be tackling economic reforms in a small country heavily reliant on European tourism and remittances from overseas Tunisians for its foreign income.
International lenders have been worried about Tunisia's delayed transition and want cuts in public subsidies and other reforms to trim its wide budget deficit.
But trimming public spending will be a risky balance for Jomaa in a country whose 2011 uprising initially began over economic conditions, jobs and repression. Cost of living remains one of the major complaints for Tunisians.
Riots erupted in several southern cities and parts of Tunis last week over a planned tax increase on vehicles just as the Islamist party were about to resign. The government rolled back the plan, leaving it to Jomaa to handle.
"Here, we have problems, everyday problems and the revolution hasn't really changed life," said Azzedine, a store owner in the impoverished Ettahdamon district of Tunis, where youths clashed with police last week. "Here it is just like before the revolution." (editing by David Stamp)
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