USA-TILLERSON/MIDEAST (UPDATE 1, PIX, TV):UPDATE 1-Islamic State yet to suffer "enduring defeat" says Tillerson
* Iraq needs $88 billion to rebuild after three-year war
* U.S. Secretary of State Tillerson urges support
* Urges vigilance to prevent Islamic State returning
* Iraq to sign $3 billion MoU with EXIM Bank
* NATO says ready to expand training mission in Iraq (Adds U.S. Defense Secretary and Iranian FM)
By Yara Bayoumy and Maher Chmaytelli
KUWAIT, Feb 13 (Reuters) - The United States on Tuesday urged members of the coalition fighting Islamic State to help rebuild Iraq or risk a reversal of the gains made against the group, and said it would extend to Baghdad a $3 billion credit line.
The United States leads the coalition and hopes that after a three-year fight to defeat the militants it can count largely on Gulf allies to shoulder the burden of rebuilding Iraq. It is also counting on a Saudi-Iraqi rapprochement to weaken Iran's influence there.
Iraq declared victory over Islamic State in December, having taken back all the territory captured by the militants in 2014 and 2015. The fighters have also been largely defeated in neighbouring Syria.
"If communities in Iraq and Syria cannot return to normal life, we risk the return of conditions that allowed ISIS to take and control vast territory," U.S. Secretary of State Rex Tillerson told a donors' conference for Iraq hosted by Kuwait. ISIS is another acronym for Islamic State.
"We must continue to clear unexploded remnants of war left behind by ISIS, enable hospitals to reopen, restore water and electricity services, and get boys and girls back in school."
Although the U.S. government was not expected to pledge direct financial aid at the conference, Tillerson said the official U.S. export credit agency, the Export-Import Bank of the United States (EXIM), would sign with Iraq's finance ministry on Tuesday a $3 billion memorandum of understanding "that will set a stage for future cooperation".
Iraq has suffered from decades of war and it is striking that it is holding its reconstruction conference in Kuwait, which it invaded in 1990, leading to defeat by a U.S.-led coalition and more than a decade of sanctions.
Kuwait will celebrate Liberation Day from Iraq in two weeks and Iraq still pays it reparations.
BALANCING ACT
Iraq's Shi'ite-led government is pursuing a difficult diplomatic balancing act by trying to maintain good relations with both the United States and its Sunni Gulf Arab allies and with their main regional foe, Shi'ite Iran.
Arriving in Kuwait for the conference, Iranian Foreign Minister Javad Zarif said his country would "stand by the Iraqi people forever".
"At a time when only a few countries were participating in the reconstruction of Iraq, Iranian companies were active in building roads in the country and providing Iraqis with engineering services," he was quoted by state news agency IRNA.
Iraqi Prime Minister Haider al-Abadi, whose government puts the costs of reconstruction at more than $88 billion , said Iraq could not rebuild without outside help.
Iraq has published a list of some 157 projects for which it is seeking investment. Baghdad has said it is determined to tackle the red tape and corruption that hamper investment.
"Doing business in Iraq can be complicated, but the Iraqi market has vast potential," said Tillerson.
NATO Secretary-General Jens Stoltenberg said the alliance was ready to answer a U.S. call for it to expand its small training mission in Iraq to support reconstruction.
Tillerson also cautioned that the end of major combat operations in Iraq did not mean the United States and its allies had achieved final victory over the militants.
"In Iraq and Syria, ISIS is attempting to morph into an insurgency. In places like Afghanistan, the Philippines, Libya, West Africa, and others, it is trying to carve out and secure safe havens," he said.
U.S. Defence Secretary Jim Mattis echoed those comments, saying the fight against Islamic State had been discussed on Tuesday at a meeting in Rome of about a dozen coalition defence ministers.
"ISIS is not down, the fight is not over... not even the caliphate is completely down... We have to work against this ideology, we have to work against (the) financing," he said. (Reporting by Yara Bayoumy and Maher Chmaytelli; Additional reporting by Robin Emmott in Brussels, Idrees Ali in Rome, and Bozorgmehr Sharafedin Nouri in London; Writing by Ahmed Aboulenein; Editing by Gareth Jones)
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