* Karzai sees security improvement within two years
* Afghanistan talks in Lisbon, U.S. review in December
* Tentative steps taken towards Taliban talks
By Hamid Shalizi
KABUL, Oct 20 (Reuters) - The hope for peace and reconciliation in Afghanistan after almost 10 years of war has increased, President Hamid Karzai said on Wednesday, reinforcing his wish for a political settlement to the intractable conflict.
During a long address at his presidential palace in the Afghan capital, Karzai made no direct reference to peace talks between his government and the Taliban and other insurgents.
But he said Afghanistan and its allies were all working towards a settlement and that he hoped significant improvements would be achieved within one or two years.
"Hope for peace in Afghanistan has increased. The international community, our neighbours and all our people are endeavouring a lot towards it," Karzai said.
"We are in contact with our neighbours ... so that they endorse this process and we are hopeful that we all see improvement in the security situation and stability of our country within a year or two, compared to what we have today and yesterday," Karzai said.
Violence is at its worst across Afghanistan since the Taliban were overthrown by U.S.-backed Afghan forces in late 2001, with civilian and military casualties hitting record levels this year despite the presence of almost 150,000 foreign troops.
Progress in the Afghan conflict will be discussed at a NATO summit in Lisbon next month and will be addressed when U.S. President Barack Obama conducts a review of Washington&${esc.hash}39;s war strategy in December.
A year ago, Obama ordered an extra 30,000 U.S. troops into Afghanistan but also plans to begin drawing down his forces from July 2011, depending on conditions on the ground which include the readiness of Afghan forces to shoulder the security burden.
<^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^
For more on Afghanistan, click on [ID:nAFPAK]
For factbox on key players [ID:nSGE69D0CY]
For analysis on the talks [ID:nSGE69D0AE]
^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^>
Karzai has established a High Peace Council, the leader of which has indicated he will be flexible about tough conditions set by Karzai for any attempts at mediation with the Taliban.
Karzai has long advocated talking with insurgents but has also stressed that they must first renounce violence, cut ties with al Qaeda, and accept the new Afghan constitution.
Washington has emphasised similar preconditions.
On Wednesday, The New York Times newspaper quoted an unidentified source as saying talks to end the war involved "extensive, face-to-face discussions with Taliban commanders".
U.S. General David Petraeus, the commander of foreign troops in Afghanistan, said last week NATO-led forces had facilitated the passage of a senior Taliban leader to Kabul for talks with the Afghan government as part of the reconciliation process.
Petraeus said the discussions were preliminary and could not yet be characterised as negotiations.
Richard Holbrooke, the senior U.S. envoy for Afghanistan and Pakistan, has said reports about secret talks between the Taliban and the Afghan government were exaggerated and warned against over-emphasising what he described as unofficial contacts.
Such sentiments were backed by a source among the Afghanistan opposition based in Pakistan. "Definitely there are contacts but, let me tell you, you can&${esc.hash}39;t call them talks," the source said.
The Taliban has repeatedly dismissed the reports of negotiations, repeating its position that all foreign troops must leave Afghanistan before talks are possible.
"PEOPLE ARE ANGRY, FRUSTRATED"
Karzai said the 70-member peace council, headed by former Afghan President Burhanuddin Rabbani, was drawing up a "mechanism" and would move forward shortly.
Karzai said last week the council would have full independence, which some of its members saw as a sign he is willing to soften his terms for negotiations with the Taliban.
He said on Wednesday Afghanistan was cooperating with the United States and its allies in Europe and elsewhere to confront terrorism. "But where our own people are angry and frustrated for various reasons, we want reconciliation and peace," he said.
With Taliban attacks spreading out of traditional strongholds in the south and east, rising casualties and sagging support in the West for the war, Karzai in June won approval from a tribal gathering to seek a negotiated end to the conflict.
The New York Times report said Taliban leaders from the "Quetta shura" -- the leadership of the Afghan Taliban who are based in Pakistan --- and one member of the Haqqani network had taken part in talks.
The al Qaeda-linked Haqqani network has been increasingly active in Afghanistan&${esc.hash}39;s east and has been blamed for a number of recent high-profile attacks.
(Additional reporting by Sayed Salahuddin in KABUL and Zeeshan Haider in ISLAMABAD; Writing by Paul Tait; Editing by Alex Richardson)
Our Standards: The Thomson Reuters Trust Principles.
