(Combines quotes, adds details)
* Moualem says Syria withdrew targeted assets
* Arab League closed off the chance to resolve crisis
* Syria says faces armed foes, weapons flow from outside
BEIRUT, Nov 28 (Reuters) - Syria said on Monday the Arab League had declared economic war on Damascus by announcing sanctions against its Central Bank, but said it had already withdrawn most funds targeted by a freeze on government assets.
Foreign Minister Walid al-Moualem also accused the Arab League of ignoring armed groups Damascus blames for the violence during the eight-month uprising against President Bashar al-Assad, displaying graphic pictures of bloodied corpses during a televised news conference in Damascus.
Syria made every effort to find a way out of the crisis, in which the United Nations says 3,500 people have been killed by Assad's crackdown, Moualem said. "Yesterday, with the decision they took, they closed these windows," he said.
It was clear the Arab League wanted "to internationalise the crisis ... I never felt their intentions were honest," he said.
Damascus insists it has started to implement a Nov. 2 agreement to withdraw its military from urban centres, release political prisoners and launch a dialogue with the opposition, and Moualem said it had not rejected outright an Arab League monitoring mission.
"Sanctions are a two-way street. I am not warning here, but we will defend the interests of our people ... We have to defend the interests of our people," the minister said.
But he also addressed a long-standing demand of protesters, saying Syria plans to drop a constitutional clause which designates Assad's Baath Party as the leader of "state and society" in Syria.
Moualem said he was told by the head of a committee tasked with reforming the constitution that a revised version "includes multi-party (politics), and there is no place for discrimination between parties, meaning there is no Article Eight."
Showing pictures of bloodied and beaten corpses, Moualem criticised the Arab League and Syria's Western critics for failing to accept that Syria faces an armed opposition.
"They refuse to acknowledge the existence of armed groups," he said.
Alongside the mainly peaceful protests against Assad, an increasingly active armed insurgency has targeted soldiers and military bases across the country, killing scores of security force personnel according to activists and state media.
Moualem said Syria's agreement with the Arab League had also called for Arab countries to take steps to curb the flow of money and arms into Syria and end "media incitement" over Syria - commitments he said Syria's neighbours had not kept.
"Weapons are coming across borders and we want measures from you to control the borders. We are serious about discussing this," he said. (Reporting by Laila Bassam and Dominic Evans; Editing by Jon Hemming)
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