(Updates with French minister on troops, Diabaly situation, paras 10-15)
* Questions linger over mission's planning, financing and supplies
* Malian, French forces enter Diabaly - Mali sources
* French defence minister says no ground fighting in that town
By Joe Bavier
ABIDJAN, Jan 19 (Reuters) - African leaders meeting in Ivory Coast on Saturday are expected to sign off on a regional mission that is due to take over from French forces fighting al Qaeda-linked militants in Mali, but is still short on financing and planning.
France has carried out air strikes and scrambled ground troops to halt an Islamist advance, acting to prevent militants from tightening their grip on Mali's northern desert zone and using it as a springboard for attacks in Africa and on the West.
The stakes rose dramatically this week when Islamist gunmen cited the French intervention as a pretext to attack a desert gas plant in neighbouring Algeria and seize hostages. An unknown number have been killed and more than 20 foreigners were still captive or missing on Saturday.
The crisis has forced African nations to accelerate their own planned mission to Mali, which was originally not expected before September.
A Western diplomat following the process said there were many uncertainties, even though heads of state were expected to formally confirm pledges to dispatch some 5,000 African soldiers to join French forces in Mali.
"That's the process. But the content is still a bit of a question mark and that's hopefully what they're going to explain to us now," the diplomat said, asking not to be named.
Nigeria and Togo have already started their deployments, with Niger, Burkina Faso and Chad expected soon. But the diplomat said the mission, which secured United Nations Security Council backing late last year, remained "fluid".
"WHO'S GOING TO PAY?"
"The troops are meant to go with 10-day self-sufficiency. But there's nothing in place to say what happens after," the diplomat said. "Who's going to pay for this, and what mechanisms are going to pay for it? The money is a big question."
The bombing of a rebel column by French war planes and helicopters has halted an advance towards the central Malian towns of Mopti and Sevare. Dozens of air raids and the deployment of French ground troops have helped Mali's disorganised army fight back.
The town of Konna was seized back from the insurgents earlier this week, but there were conflicting reports on Saturday about the situation in another town, Diabaly.
Malian military sources said French and Malian forces had entered Diabaly after it was abandoned by the insurgents on Friday following a number of French air strikes.
"French and Malian forces are clearing the town, house by house, as the Islamists had sheltered in houses," one of the officers said, asking not to be named as he was not authorised to speak to the media.
However, French Defence Minister Jean-Yves Le Drian said there were no Malian or French soldiers in Diabaly, and dismissed media reports over recent days of hand-to-hand fighting there.
"I think someone's hallucinating," he told French state TV in an interview. "There has been no fighting on the ground in Diabaly. We have said it and are saying it daily."
Seydou Traore, a local government official in nearby Niono, said troops had moved in to Diabaly after the Islamists left. He refused to specify their nationality for security reasons, but added that Islamists had abandoned arms and ammunition in the town.
The Malian officer who spoke of a house-by-house mopup after the exit by Islamist forces said that there would be a pause in operations as Malian and French forces awaited the deployment of the African regional mission.
"We are waiting for them to get here before we launch a bigger and wide-ranging offensive," he said.
Le Drian said France had 2,000 troops on the ground in Mali as of Saturday morning, and the total might eventually exceed 2,500. Paris has said they will remain as long as it takes to restore stability, but it is keen to hand over leadership of the mission to West African troops as soon as possible.
Traore, the local administrator in Niono, said the Islamists were believed to have headed west.
Military experts say France and its African allies must now capitalise on a week of hard-hitting air strikes by seizing the initiative on the ground to prevent the insurgents from withdrawing into the desert and reorganising.
"The more painful the militants can make the push into northern Mali and subsequent pacification effort, the more they can hope to turn French, Western and African public opinion against the intervention in the country," global intelligence consultancy Stratfor wrote in a report on Friday. (Additional reporting by Tiemoko Diallo in Bamako, Brian Love in Paris and Bate Felix in Niono; Writing by David Lewis; Editing by Mark Trevelyan)