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* Sunni extremists seek to encircle Baghdad
* Shi'ite militias join Iraqi army to fight them
* Politicans say militia fighters report to government
* Government denies involvement
By Ned Parker, Ahmed Rasheed and Raheem Salman
BAGHDAD, April 27 (Reuters) - The Sunni militants who seized the riverside town of Buhriz late last month stayed for several hours. The next morning, after the Sunnis had left, Iraqi security forces and dozens of Shi'ite militia fighters arrived and marched from home to home in search of insurgents and sympathizers in this rural community, dotted by date palms and orange groves.
According to accounts by Shi'ite tribal leaders, two eyewitnesses and politicians, what happened next was brutal.
"There were men in civilian clothes on motorcycles shouting 'Ali is on your side'," one man said, referring to a key figure in Shi'ite tradition. "People started fleeing their homes, leaving behind the elders and young men and those who refused to leave. The militias then stormed the houses. They pulled out the young men and summarily executed them."
The killings turned this town 35 miles northeast of Baghdad into a frontline in Iraq's gathering sectarian war.
In Buhriz and other villages and towns encircling the capital, a pitched battle is underway between the emboldened Islamic State of Iraq and the Levant, the extremist Sunni group that has led a brutal insurgency around Baghdad for more than a year, and Iraqi security forces, who in recent months have employed Shi'ite militias as shock troops.
On the eve of national elections on April 30, Iraq is fast returning to the horrors of its recent past. Security officials, tribal figures and politicians fear ISIL might choke off the capital as an earlier incarnation of the group did in the years following the American invasion. Then, Sunni extremists sent multiple car bombs into Baghdad on an almost daily basis, and killed Shi'ites with impunity.
The vote this month and the race to form a new government will be contentious, with multiple Shi'ite lists vying for the premiership - Sunnis and Kurds looking for plum posts - and Prime Minister Nouri al Maliki determined to stay in office.
Moderation is a rare commodity. Some of Iraq's Sunni politicians have denied ISIL's existence in Anbar and blamed all troubles on Maliki, even if it means ISIL continues to grow.
In turn, militia groups have joined the Iraqi military's combat missions against the insurgents, and sent fighters to battle Sunni rebels in Syria.
SONS OF IRAQ
Asaib Ahl al-Haq and Kata'ib Hezbollah, two groups once suppressed by the American military and sponsored by the Iranians, make up the bulk of the Shiite militia fighters aiding the Iraqi security forces. According to three senior Shi'ite politicians, individual Asaib and Kata'ib members and others now defend Baghdad as part of an organization, attached to the prime minister's military office, called the Sons of Iraq, a name formerly associated with Sunnis who battled al Qaeda.
Maliki briefed senior Shi'ite politicians about the new paramilitary group in a meeting about the war with ISIL on April 7, where he expressed frustration about the military's performance fighting in cities and towns, according to two people who attended the session.
Maliki told senior Shi'ite political figures that they had formed groups "of mujahedeen and Sons of Iraq ... on the periphery of Baghdad"; he called the fighters "better than the army" at "guerrilla warfare," according to the meeting minutes read to Reuters and confirmed by a second person who attended.
Shi'ite lawmaker Amir al-Kinani, a critic of Maliki, attended the session and said the group, which has been in existence for a year, was drawn primarily from the ranks of Asaib and Kata'ib.
"They have executed several operations in the belt of Baghdad and Diyala. They made qualitative operations there in Buhriz," he said. "They are ... jihadists ready to die." Others aware of the initiative described it as an effort to absorb Iraq's armed Shi'ite hardliners within the state.
Maliki's spokesman denied any militias were fighting for the government or belonged to a new organization that reports to him. "We don't have people who kill themselves to kill others and are considered as martyrs," said Ali Mussawi. "There is nothing like this."
The spokesman for police and military operations in Baghdad province also dismissed the accounts. "Such allegations are baseless and wrong, launched by those who were infuriated by the victories achieved by our security forces," said Brigadier Saad Maan.
Asaib has also publicly denied any such involvement in the fighting in Iraq. But security officers, political figures and Shi'ite and Sunni residents tell a different story.
One volunteer fighter, who called himself Abbas, said he had joined the new Sons of Iraq and fought three months in Abu Ghraib. He said his battalion reported to the prime minister's office of commander in chief. "We are all Shi'ites, and when people learn we are Shi'ites there to free them and fight against ISIL they welcomed us in," Abbas said.
The person who introduced him said Abbas was from Asaib, but he said he was just a labourer who volunteered along with 750 mostly Shi'ite young men from around western Baghdad.
The men had been gathered at an airport base in western Baghdad, and were then given military fatigues, M-16s and shipped to fight in a 750-strong battalion around Zaidan, west of Baghdad, and in Latifya, south of Baghdad, he said. He and others quit when the government did not pay them after three months, but he spoke proudly of combat operations.
"When we found (the terrorists) in a house, we killed them. We burned the house or demolished it. We burned those houses because we didn't want them to be a shelter for terrorists."
He estimated they destroyed 25 or 26 homes.
When the killing in Buhriz ended, residents and the mayor of neighbouring Baquba counted at least 23 dead. Local Shi'ite officials said terrorists killed any civilians. But ordinary citizens - Shi'ite as well Sunni - say regular people died at the hands of the militia.
The lawmaker Kinani confirmed that innocent people died in Buhriz at the hands of Sons of Iraq Shi'ite paramilitaries but called it the cost of the need to expel ISIL from the area. "Yes of course civilians died. I am not defending the killing. (But) ISIL is killing people, they are killing the (Shi'ites). They are killing even the Sunnis," Kinani said. "When the Sons of Iraq entered the area, ... they were thinking of only killing ISIL, so there weren't any war prisoners."
Other Shi'ites are horrified by what happened, and feel confused about how to face the threat of ISIL, who they now worry will over-run them.
The lawmaker Kinani, other politicians and tribal figures say the Shi'ite paramilitaries are now assisting the army around the Baghdad belt to fight the insurgency, in part due to desertions and the decimation of some army units. In recent days the groups have fought through a farming area called Ibrahim Bin Ali within 16 miles (25 km) of Baghdad. If the area falls, ISIL will have a foothold into Shi'ite parts of Baghdad.
Security has deteriorated fast over the last four months. In December, Maliki launched a campaign against ISIL in their heartland west of Baghdad. Fighting descended into a series of brutal atrocities, often caught on video and in photographs by both militants and Iraqi soldiers.
Iraqi soldiers say they have been trapped in and around the western city of Ramadi. They say they have run low on tank shells, lack aerial cover and armoured vehicles, and have been hit by high casualties and desertion rates.
In March and April, ISIL seized a dam in Fallujah, flooded farmland on the outskirts of Baghdad in Abu Ghraib, and drained offshoots of the Euphrates river; the Iraqi government evacuated the main prison for Sunni detainees in Abu Ghraib because of the ongoing clashes; and militants, thought to be from ISIL, bombed the country's oil pipeline to Turkey.
Last week, an intelligence officer who focuses on Anbar used a map to show Reuters how ISIL had free range from Anbar's western desert down to the borders of the Shi'ite provinces of Hilla and Karbala and across the northern provinces of Mosul, Kirkuk and Salahuddin. In Anbar, the fighting has displaced at least 420,000 people. Ordinary citizens feel that the government has declared war on them.
It has been equally devastating for the military. Military personnel and Iraqi officials say several thousand soldiers have deserted; and well over a thousand, if not more, have been killed. The government has yet to release formal numbers.
Soldiers in Anbar speak with desperation. "We are dumped by our military leadership in these deserted houses in the middle of the orchards, without enough ammunition, without night binoculars," said one soldier from Ramadi.
His battalion has 120 of its original 750 soldiers; most have deserted and he vows to do the same.
One army officer said Iraq's Special Forces, who have led the fight against the insurgency, are now taking defensive positions to avoid more casualties.
In part, he blamed graft in Iraq's military. "It starts from taking cuts from food allocation money, sums for repairing and maintaining Humvee and armoured vehicles and finally fuel supplied for each regiment," the officer said.
Even divisional commands are now for sale, according to a senior Baghdad general. He told the story of a peer who had been offered such a command in northern Iraq for $1 million, with the agreement he would pay the sum back in two years. When the general asked where he would raise this money, he was told he could collect protection fees from local businesses and extract a fee from trucks at highway checkpoints. He should aim to pay off $50,000 every month.
The spokesman for the interior ministry and Baghdad security operations, Brigadier Saad Maan, dismissed the allegations as "lies and baseless accusations."
In Salahuddin province it is ISIL that is at the centre of money-raising scams. Fake checkpoints dot the roads, with men in uniforms looking to kill anyone in the security forces. A video released by ISIL last month showed men in police uniforms capturing a pro-government Sunni fighter. One of the ISIL members bragged: "You arrest our leaders and we pay in dollars to set them free, but when we catch you, we slaughter you." (Reporting by Ned Parker; Editing by Giles Elgood)