* ISIL's sweeping advance eclipses al Qaeda's Zawahri
* Fighters from Egypt to Pakistan to switching allegiance
* Baghdadi's success draws recruits
* But ISIL risks military overreach, public backlash
By Mariam Karouny and Paul Taylor
June 16 (Reuters) - If the battle in Iraq and Syria were being fought by tycoons rather than jihadis, it might be called a hostile takeover in defiance of the main shareholder that has created a powerful multinational brand with an uncertain future.
The price is being paid in blood as fighters of the Islamic State in Iraq and the Levant (ISIL), a scion of the al Qaeda militant jihadist franchise, carve out a cross-border empire by killing government troops and former Islamist allies alike.
With stunning speed, ISIL has captured swathes of territory in northwest and central Iraq, including the second city of Mosul, seizing large amounts of U.S.-supplied modern weaponry from the fleeing Iraqi army and looting banks.
The story begins more than a year ago when the leader of a group then called the Islamic State in Iraq, Abu Bakr al-Baghdadi, who had led radical Sunni resistance to the Shia-dominated Iraqi government, decided to move into Syria.
He declared a merger in April 2013 with the Nusra Front, then the main al Qaeda affiliate battling President Bashar al-Assad, without consulting either its leader, Abu Mohammed al-Golani, or global al Qaeda chief Ayman al-Zawahri.
Ironically, it was Baghdadi who sent his lieutenant Golani into Syria in 2011 to build up al Qaeda's presence, taking advantage of a popular uprising against Assad to found Nusra.
Zawahri, the successor to Osama bin Laden, who lives in hiding, urged the two groups to work together in a sort of joint venture. Baghdadi defied him and ISIL turned its guns on Nusra, quickly gaining the upper hand over its rival, which until then had been the most feared and effective anti-Assad rebel group.
In disrespectful language, ISIL spokesman Abu Muhammad al-Adnani posted an audio statement on Twitter in May rejecting the al Qaeda leader's call for ISIL to disengage from Syria and go back to Iraq.
"You made yourself and your al Qaeda a joke and a toy in the hands of an arrogant traitor-boy (Golani) who broke the pledge of allegiance that you did not see," Adnani said.
Despite an ultimatum from Golani to pull out of Syria or face eradication, Baghdadi's men proved more ruthless. They slaughtered Nusra prisoners, posting grisly videos of the decapitations online as a deterrent and recruiting tool.
Enforcing their rule with public executions, they now control the eastern Syrian city of Raqqa, the only major urban area entirely in rebel hands, and hold territory from the Turkish border to the oil producing eastern deserts of Syria.
Many Arab and foreign fighters defected from Nusra to ISIL, but the struggle among Assad's enemies helped government forces regain ground and alarmed foreign backers of the rebels in the West, Turkey and Gulf states.
TURF AND TACTICS
The differences between ISIL and Nusra were not so much over ideology - both advocate strict enforcement of a mediaeval-style Islamist rule - as over turf, tactics and personal allegiances.
ISIL includes thousands of foreign fighters and has become the main recruiting magnet for jihadi volunteers from Europe and North Africa, Western intelligence agencies say.
"ISIL is fast eclipsing al Qaeda as the bête noire of international politics," said Charlie Cooper of the Quilliam Foundation, a London-based think-tank devoted to combating jihadi radicalisation.
"While al-Zawahri is sitting stagnant in a safe house, ISIL's leader, Abu Bakr al-Baghdadi, has taken control of nearly a third of Iraq and much of Syria, amassed a fortune that rivals the economy of some small states, and commandeered millions of dollars' worth of state-of-the-art American-made weaponry."
He cited Iraqi intelligence information that ISIL, estimated to have up to 10,000 fighters, has amassed assets of about $2 billion, some by selling oil from eastern Syria to Assad's government.
The Iraqi guerrilla chief has not only sidelined Nusra but challenged the authority of the al Qaeda leader himself.
ISIL has many attributes of a state - territory, armed forces, guns, oil and money. But it has moved faster than Zawahri advocates to create an Islamic caliphate at the risk of concentrating fighters in areas where they may be vulnerable to superior Western firepower.
The United States may be reluctant to take any action that could strengthen Assad in Syria, but is under pressure to attack ISIL forces in Iraq and prevent them destabilising the Baghdad government of Prime Minister Nouri al-Maliki.
Critics say Baghdadi may have overreached. He has alienated many Syrian rebels, who see him as a brutal figure focused less on toppling Assad than on imposing a radical Islamist rule including religious courts and public executions, publicised in gruesome videos.
Many accused him privately of hijacking their revolution. "We reject his presence here on the ground. He should take his fighters and go back to Iraq," a Nusra source close to Golani said last year. "We are not happy with the way he operates nor with his methods."
The source, and other Syrian Nusra fighters who spoke to Reuters at the time, said they feared Baghdadi's supporters would alienate Syrians in the same way that the jihadis had turned Iraqis against them.
That enabled U.S.-backed Sahwa militias to turn the tide against al Qaeda in western Iraq in 2007.
One Nusra fighter said he believed Baghdadi held a personal grudge against Golani, his former aide, because of his standing in Syria.
Golani, a radical Sunni Muslim, won popularity even among some Christians, according to the Nusra fighter. "Baghdadi did not like this," the fighter said.
"Baghdadi and the (al Qaeda) leadership consider the Muslim Brotherhood, the Free Syrian Army and other factions including Christians as infidels and when they saw Golani was on good terms with them they were not happy."
Attempts to mediate collapsed in February after senior al Qaeda member Abu Khaled al-Soury, a friend of bin Laden sent by Zawahri, was killed in a suicide attack in Syria.
Nusra accused ISIL of killing him, a charge sources close to the Iraqi-based group have denied.
Since then, the al Qaeda leader has repeatedly tried to assert his authority over Baghdadi's movement and end the infighting between ISIL and Nusra, to no avail.
In an video message released in early May, Zawahri said ISIL's entry into Syria had caused "a political disaster" for Islamist militants there and a "waterfall of blood". He urged the group to go back to fighting in Iraq.
FROM PAKISTAN TO SINAI
The Quilliam Foundation's Cooper said Baghdadi had clearly decided to go it alone in defiance of Zawahri, taking much of the international jihadist community along with him in the battle for territory that corresponds to ancient Mesopotamia.
"ISIL has repeatedly broken with the al Qaeda norm and a new monster has emerged. We are closer than ever before to seeing a jihadist state in Mesopotamia," he said.
"This is one of ISIL's greatest selling points and one that draws jihadists from around the world - to go to Iraq or Syria and fight with it is to go and fight for the utopian caliphate."
Before the latest fighting, security experts estimated ISIL had about 6,000 fighters in Sunni areas of northern Iraq and 4,000 in Syria, but the numbers in Iraq may have risen since.
By realising bin Laden's vision of a Sunni purist state, Baghdadi, 43, is eclipsing al Qaeda's nominal but remote leader, Zawahri, a 62-year-old exiled Egyptian, in a universe where personal allegiance counts most.
"He (Baghdadi) has almost taken his (Zawahri's) place," said a jihadi fighter interviewed by Reuters in recent weeks inside Syria. "We can say he is now (the leader)."
"What many people do not know or try to ignore is that the real project or goal of the Islamic state is the Caliphate and Zawahri is hesitant," another fighter said. "That is why now his word is becoming less heard and most pledges of allegiance are sent to Emir al-Baghdadi, God save him."
Success on the ground breeds allegiance. Security sources in Egypt's turbulent Sinai peninsula say an al Qaeda-affiliated group, Ansar Bayt al-Maqdis, which is fighting the army-backed Egyptian authorities that toppled Muslim Brotherhood President Mohamed Mursi last July, has turned to ISIL for support.
One Egyptian security official said the Sinai group, estimated to have about 1,000 militants, had no recognised leader who could formally pledge allegiance to Baghdadi. But the prospect has alarmed Egypt's pro-military media.
"Two or three members from Ansar Bayt al-Maqdis were in contact with the ISIL in the months that followed Mursi's ouster on July 3 to learn from their experience in Syria," said another security source in the lawless peninsula that borders Israel.
Even some al Qaeda fighters in Afghanistan and Pakistan, Zawahri's stronghold, have written to the ISIL leader, pledging their allegiance, according to a Nusra fighter in the Syrian city of Aleppo.
To his followers, Baghdadi represents a new generation of fighters working to fulfil the next stage of bin Laden's dream, moving from al Qaeda - which can mean "the base" in Arabic - towards the fully fledged radical state.
The falling-out between Zawahri and Baghdadi has caused uproar in password-protected jihadi Internet forums, according to the U.S. intelligence company SITE which monitors them.
Some jihadis have called for Zawahri to hand over the leadership to his de facto number two, Nasser al-Wuhayshi.
Others go further, saying Baghdadi's creation of ISIL makes Zawahri's part of al Qaeda's operation redundant. "The group al Qaeda does not exist any more. It was formed as a qaeda (base) for the Islamic State and now we have it, Zawahri should pledge allegiance to Sheikh Baghdadi," said a non-Syrian ISIL fighter. (Additional reporting by Samia Nakhoul in Beirut, Yasmine Saleh and Dominic Evans in Cairo and William Maclean in Dubai; Writing by Paul Taylor; Editing by David Stamp)
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