* First time India has publicly backed Afghan peace plan
* India to donate further $500 million for development
* Singh says India wants "friendly" relations with Pakistan
(Adds quotes, details)
By Jonathon Burch and Amie Ferris-Rotman
KABUL, May 12 (Reuters) - Indian Prime Minister Manmohan Singh, on a visit to Afghanistan on Thursday, said India strongly supported a plan by Kabul to reconcile with Taliban-led insurgents, New Delhi's first public backing of the plan.
India was rattled when the United States and NATO agreed earlier this year to a plan by Afghan President Hamid Karzai to reintegrate Taliban fighters and reconcile with their leaders after nearly 10 years of fighting.
New Delhi has feared attempts to reach out to the insurgents would give rival Pakistan, which holds influence over the militants, a greater say in the Afghan peace process and might ultimately lead to a Taliban takeover when Western forces leave. [ID:nSGE66K00B]
Successfully balancing the competing interests of India and Pakistan, who have been jockeying for influence in Afghanistan for years, has been a challenge for the United States.
"We wish to see a peaceful, stable, democratic, pluralistic Afghanistan. We strongly support Afghan people's quest at peace and reconciliation," Singh told Karzai at his palace in Kabul.
"India supports firmly the unity, integrity and prosperity of Afghanistan."
Violence in Afghanistan is at its worst since the Taliban were overthrown in late 2001 despite the presence of 150,000 foreign troops, including 100,000 Americans, with record casualties on all sides.
Washington recognises that fighting alone will not end a war which has dragged on for almost ten years and has cautiously backed a political settlement as long as conditions are met.
One of the main conditions is that insurgents renounce al Qaeda. The Taliban, who once sheltered Osama bin Laden inside Afghanistan, have rejected any peace talks with the Afghan government until all foreign troops have left the country.
The trip is Singh's first visit to Afghanistan since 2005 and comes just over a week after bin Laden was killed by U.S. special forces in Pakistan.
Analysts say the Taliban have been trying to distance themselves from al Qaeda over the past few years, and have never professed any ambitions outside Afghanistan. [ID:nL3E7G32VJ]
India is nervous about Washington's plans to start withdrawing troops from July and give security responsibility to Afghans in parts of the country. The death of bin Laden has added to India's fears of swift U.S. disengagement.
While Washington has said the killing of bin Laden will not affect its mission in Afghanistan, India is worried a speedier U.S. pullout might leave it exposed to an unfriendly, Pakistan-dominated neighbourhood. [ID:nL3E7G32YR]
A senior Indian government official said on Wednesday Singh would discuss with Karzai the regional implications of bin Laden's death which were a concern for India. On Thursday, Singh said there should be an investigation into how bin Laden was able to hide in Pakistan for so long.
Nuclear-armed rivals India and Pakistan, which have gone to war three times since 1947, have for decades sought to secure leverage in Afghanistan. India is Afghanistan's biggest regional aid donor and sixth largest overall. It has pledged $1.3 billion of projects, from building a parliament to a highway to Iran to establish what officials in New Delhi like to term "soft power".
Pakistan derides those attempts to secure influence in what it considers its neighbourhood. Islamabad has been concerned by governments in Kabul that it sees as too cosy with New Delhi. [ID:nL3E7FJ1O0]
In a move that could further anger Pakistan, Singh announced on Thursday India would donate a further $500 million to be spent on development projects in Afghanistan.
India has blamed Pakistan's military spy agency, the ISI, for attacks on Indians in Afghanistan to undermine New Delhi's influence. India's embassy in Kabul was hit by two bomb attacks in 2008 and 2009, killing 75 people and wounding hundreds. The Taliban claimed responsibility.
For its part, Pakistan accuses India of backing separatists in Baluchistan, an area which spills into Afghanistan. India denies the charge.
"We would like to develop friendly relations with all countries of this region, and that includes Afghanistan, that includes Pakistan as well," Singh told a news conference. (Writing by Jonathon Burch)