An Afghan peace council to pursue talks with the Taliban has been set up, President Hamid Karzai said on Saturday, the latest step in a gradual move toward reconciliation with the Islamist insurgents.

The idea for a peace council was discussed at a traditional gathering, or jirga, attended by about 1,600 Afghan leaders and tribal elders in the capital, Kabul, in June.

Karzai's presidential palace issued a statement on Saturday which said the creation of the High Peace Council was "a significant step toward peace talks."

Karzai's plan, backed by tribal elders at the "peace jirga," involves luring Taliban foot soldiers away from the insurgency with cash and job incentives while seeking reconciliation with senior leaders by offering them asylum in other Muslim countries and striking their names off a U.N. blacklist.

The Taliban, however, have so far scoffed at the idea of talks, saying all foreign forces must first leave Afghanistan.

Members of the council would be announced after the Muslim fasting month of Ramadan, probably at the end of the week, the statement said.

Karzai's plan for eventual reconciliation with the Taliban has developed as several European NATO members examine how much longer their commitments in Afghanistan can be sustained.

In London, the British Foreign Office welcomed Karzai's announcement. "We will not bring about a more secure Afghanistan by military means alone," it said in a statement. "We have always said that a political process is needed to bring the conflict in Afghanistan to an end."

U.S. President Barack Obama, who will conduct a war strategy review in December, also plans to begin a gradual withdrawal of U.S. troops from July 2011 if conditions at the time allow.

There are almost 150,000 foreign troops in Afghanistan fighting the growing Taliban-led insurgency, with violence at its worst levels since the Taliban were ousted in 2001.

General David Petraeus, commander of U.S. and NATO forces in Afghanistan, said on Thursday the United States would soon start preliminary talks with its allies on next year's planned "transition" before a NATO summit in Lisbon in November.

Washington's NATO allies are increasingly uneasy about the unpopular war and are eager to shift security responsibilities to Afghan forces. Karzai has set an ambitious target of 2014 for Afghanistan to take over complete security responsibility from U.S. and NATO forces.

(Writing by Tim Gaynor; additional reporting by Avril Ormsby in London, Editing by Paul Tait/David Stamp)

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