* Arrival of French armour, soldiers reassure locals
* Businesses doing brisk trade with French soldiers
By Bate Felix
SARAKALA, Mali Jan 19 (Reuters) - Early this week, Koura Coulibaly was ready to pack her bags and abandon Sarakala, a small village in central Mali.
Three days into an offensive by French war planes and attack helicopters, Islamist rebels launched a dramatic counter-attack, seizing the town of Diabaly town from Mali's army, about 100 km (60 miles) away.
"I called my boss and told him I wanted to leave immediately. Everyone in the village wanted to leave," Coulibaly, a local health worker, told Reuters,
Then the French, Mali's former colonial ruler, turned their air strikes on Islamists in Diabaly, and ground troops rumbled in to Sarakala, pitching a look-out opposite her clinic and positioning two armoured personnel carriers under nearby trees.
"Now, there is no need for that, we feel much safer with French troops all around us," she said, speaking in the courtyard behind the roadside hut, where she welcomes people seeking basic medical care.
Last year, Tuareg separatists bristling with weapons seized during Libya's war took up arms in Mali. But they were soon overpowered by Islamists, including al Qaeda's North African wing, who remained in control of the desert north.
Seeking to draw a line under meddling in its former colonies, Paris long said it would only provide logistical and intelligence support to African forces due to try and help Mali's army take on the rebels.
But in the face of an Islamist offensive, France intervened directly last week and has now committed to fighting in Mali for as long as it takes to rid the region of terrorism.
Paris says Islamist control over Mali's vast desert threatens the security of Africa and the West. Other nations agree and are providing logistical and intelligence support but French troops are the only Western boots on the ground.
Less than a kilometre up the road, another French unit has dug positions deep inside savannah shrub.
"The French soldiers are very friendly, to greet us and ask us how to say "Good Morning" in Bambara (the local dialect)," Coulibaly said as a French soldier crossed the road after exchanging pleasantries with nearby youth.
"STATE OF WAR"
The French intervention came after Islamists overran Mali's weak and divided army, which spent as much time in 2012 meddling in politics as it did readying ranks to try and retake the northern two-thirds of the nation occupied by rebels.
As they await an African force to take over the mission, French and Malian troops are now operating side-by-side.
A bridge spans the winding Niger river at Marakala, with French troops at one end and Malians at the other.
On the road, Malian gendarmes man several checkpoints, where public transport vehicles, motor bikes and pedestrians are searched.
"We have to do this, we are in a state of war and the situation is very dangerous," said a gendarme who asked not to be named. "We have to check that there are no infiltrators".
Malian officials said Islamists abandoned Diabaly on Friday, though French Defence Minister Jean-Yves Le Drian said there were not yet Malian or French soldiers in the town itself.
Underscoring the murkiness of the reality on the ground, where Islamists are reported be abandoning vehicles, shaving beards and removing their traditional flowing dress, many remain cautious about moving too fast.
"The enemy is very mobile. They have started to remove their robes to mix with the civilians, so I cannot tell you if they have been 100 percent destroyed," Colonel Keba Sangare, a Malian officer deployed to the zone, told reporters in Niono.
BUSINESS ON THE UP
Residents said Islamists had tried to prevent people from leaving the north, partly as they had hid amongst civilians to avoid French air strikes.
"Getting out of Diabaly is getting very difficult," said Amadou Bocom, resident of Niono. "The people that have managed to come out are terrorized. Most of them, women and children came out with nothing."
But in Markala, a town on the banks of the Niger River that hosts a military camp where the French have set up their forward base, business, as well as morale, is up.
"The past few days had been very stressful before the arrival of the French troops. The two local branches of our banks had closed," said Mohammud Sangare, who runs a hardware store in the centre of town.
Sangare said he too had planned to leave but had reversed his decision, not least because of the swift trade he is now doing with the town's new protectors.
"(The French) are buying bulbs, switches, wires," he said. "They are also buying a lot of bread from the shop nearby."
Across the road, a convoy of eight French army vehicles lined up to fill their tanks at the local fuel station. (Editing by David Lewis and Myra MacDonald)