* Around 1.5 million people internally displaced
* UNHCR not meeting even half of funding needs
* Iraqis in camps see little future
By Serena Chaudhry and Khalid al-Ansary
BAGHDAD, Aug 30 (Reuters) -Kareem Hassan Abboud's family of seven share a two room house in a makeshift squatter camp in the mainly Shi'ite district of Chukook in northwestern Baghdad. Sewage muddies the dirt road outside.
The 59-year-old fisherman and his family were forced to move there four years ago when sectarian violence between majority Shi'ites and once dominant Sunnis raged in Iraq, set off after the 2003 U.S.-led invasion that toppled dictator Saddam Hussein.
As U.S. combat operations come to a close on Tuesday 7-1/2 years after the invasion, hundreds of thousands of Iraqis like Abboud, who fled mixed-sect neighbourhoods at a time when bodies were piling up in the streets overnight, are living in squalor.
"We are waiting for a good man to govern us. To look after the helpless," said Abboud, who sees a grim future for his three grandchildren, his two widowed daughters and his wife.
"They (politicians) fight over positions and have no idea what we eat and drink and where we live," he said, gesturing towards the ceiling, made of tin and covered in cloth.
"We hope that with the U.S. troops pulling out things will be better, but I am afraid that it may not and that people may kill each other."
Many Iraqis fear the reduction in U.S. troops and their full withdrawal next year will re-ignite sectarian bloodshed.
They also feel let down by their leaders, who are stuck in a political deadlock almost six months after an election that produced no outright winner and as yet no new government.
The United Nations refugee agency, UNHCR, says the Iraq war produced the worst humanitarian crisis in the Middle East since 1948, when half the Arab population of Palestine fled their homes after the creation of Israel.
According to the UNHCR, 1.5 million people are displaced inside Iraq, of which 500,000 are squatting in camps or public buildings. In Baghdad, 200,000 people live in 120 camps.
There are also hundreds of thousands of Iraqis abroad, mainly in neighbouring Jordan and Syria.
Still too scared to go home, Iraqis who fled the war face trauma and hardship. Many find it impossible to get work and slide into poverty. Aid workers say many Iraqi women are falling into the hands of sex traffickers in the Middle East.
At the camp in Chukook, where local official Amer Kareem estimates 3,150 families live on what used to be an empty plot owned by the army, there is no plumbing -- a hole in the ground serves as a toilet. Electricity comes from a small generator.
DONORS CUT BACK
Aid workers fear that when the United States officially ends its combat mission in Iraq on Aug. 31, Iraq's humanitarian crisis will be forgotten as attention shifts elsewhere.
Daniel Endres, the UNHCR representative in Iraq, said donors had already started to disengage from Iraq, especially Europe.
"The funding that the U.N. alone would require this year would be about $264 million and right now we have $120 million. We don't even have half of what we actually would need ... I'm worried about next year in particular," he said.
"The perception is still that Iraq is a middle income country that has oil revenues and therefore there are more pressing situations."
Iraq has the world's third-largest oil reserves and signed a series of deals with oil majors to develop its oilfields, seen as crucial to re-building a country starved of investment after decades of war and sanctions.
But it will be years yet before oil revenues start to soar, and the political impasse and fragile security have kept potential non-oil investors waiting on the sidelines.
Many displaced Iraqis cannot afford to return to their old neighbourhoods. Their abandoned homes have been stripped of electric cables and furniture by looters, doors smashed in by U.S. troops looking for weapons and windows shattered by bombs.
Displacement and Migration Minister Abdul-Samad Sultan said helping the displaced go home was mainly a matter of money.
"If there was more support and more financial compensation, the problem would be solved 100 percent," he said.
The UNHCR, which built around 10,000 houses last year to help address a shortage of an estimated 1.5 million homes in Iraq, said it only managed to build 6,000-7,000 homes this year.
Endres said it was crucial donors continued to contribute.
"Statistics show that the majority of post-conflict situations crunch back into conflict within seven years," he said. "And very often you can trace it back to a lack of attention or no sustained support in these critical post-conflict years."
FRAGILE SECURITY
While violence has ebbed from the height of sectarian warfare in 2006-7, bombings and killings are still a daily occurrence and fears have grown that the political vacuum after the election and U.S. pull-back will be exploited by insurgents.
The volatile security situation is also the biggest challenge humanitarian organisations face, often delaying the delivery of aid and preventing aid workers from visiting camps.
Um Younis, 36, one of many widows in the Chukook camp who are now in charge of their households after losing their husbands during the war, says she has received little help.
"No government officials have visited the place," she said, wiping away tears with the sleeve of a black Islamic abaya. "It never crossed my mind that one day my life would end like this." (Additional reporting by Aseel Kami; Writing by Serena Chaudhry; Editing by Michael Christie)
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