WASHINGTON, Aug 8 (Reuters) - The United States plans on Thursday to unveil a strategy to fight Afghanistan's drug trade by giving provincial governors more money to eradicate poppy crops and pursue economic development, U.S. officials said.

The effort also aims to better coordinate counter-narcotics and counter-insurgency work in Afghanistan, which in the past 18 months has seen its bloodiest fighting since U.S.-led and Afghan forces toppled the Taliban movement in 2001.

U.S. officials said the new strategy for Afghanistan, which is the source of about 90 percent of the world's opium, would include a public education campaign against growing opium poppies, the key ingredient for heroin.

A State Department official, who spoke on condition that he not be named because the strategy is not yet public, said the new approach seeks to grapple with the fact that the insurgency and the drug trade are increasingly intertwined.

It also reflects the belief that provincial governors are often better at cracking down on poppy cultivation than the federal government and should be given incentives to do more.

"In provinces where the governor has established effective control, poppy is going down ... Much of the decline in provinces where there is good governance has been through governor-led eradication," the official said.

"The first step is to provide more incentives and support for provinces -- for governors -- that take effective action ... and to give them money to spend on (economic development)."

A congressional aide said the plan would include the implicit threat that governors who did not take on the drug trade would get less money for development.

"They are going to roll out a plan that's heavy on carrots and sticks," said the aide, saying the message boiled down to "you have got to do less opium if you want more projects."

UNREALISTIC GOALS?

A report by the State Department's inspector general last week said U.S. goals for eradicating Afghan opium poppies were unrealistic and that this year's crop may exceed last year's. According to a U.N. estimate, opium production in Afghanistan rose by as much as 50 percent in 2006.

The report found "no realistic possibility of outspending economic incentives in the narcotics industry" and said the $420 million spent by the United States on eradication in Afghanistan last year was dwarfed by the estimated $38 billion "street value" if the poppy crop were converted to heroin.

The Taliban, which ruled Afghanistan under strict principles of Islamic law, drastically reduced poppy growing throughout the country before it was ousted in 2001.

But in recent years poppy growth has increased dramatically, especially in southern provinces where the Taliban has encouraged it.

Afghanistan has seen a rise in Taliban suicide bombings, roadside bombs and attacks in recent months. More than 6,500 people have been killed in the past 18 months, the bloodiest period since the Taliban government was toppled in 2001.

One aspect of the new U.S. strategy is to better coordinate counter-narcotics work with the NATO-led International Security Assistance Force in Afghanistan, U.S. officials said.

This could include closer cooperation on intelligence sharing as well as better coordination on efforts to eradicate poppy crops and to interdict drug shipments.

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