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* Fear of violence leads to cancellation of marches
* Feb. 17 is second anniversary of anti-Gaddafi uprising
* Discontent reigns in east over lawlessness, neglect
* Cradle of revolt is now hub of demands for autonomy
By Ghaith Shennib and Hadeel Al Shalchi
BENGHAZI, Libya, Feb 15 (Reuters) - Leaders of groups seeking autonomy for eastern Libya cancelled a planned protest rally out of fear of violence on Friday, as thousands took to the streets to mark two years since the start of the country's revolution.
Groups in Benghazi, fount of the 2011 uprising that ousted dictator Muammar Gaddafi, had prepared mass demonstrations to demand better security and investment for Libya's second-biggest city.
"Everyone is carrying weapons in Benghazi and there is still general chaos and confusion," Zeid el-Ragas said. "As activists it's our responsibility to minimise harm in our city, so we will stay home on Feb. 15."
The actual second anniversary of the start of the anti-Gaddafi revolt is not until Sunday, but celebrations were to begin on Friday in remembrance of the arrest of a human rights lawyer in Benghazi that kindled the unrest.
The lawyer, Fathi Terbel, was honoured on Friday by lighting a torch carried by athletes throughout the city.
Cars flying national flags and blasting national songs honked their way through heavy traffic towards the courthouse. About 2,000 people gathered there, chanting anti-government slogans in between celebratory songs and speeches.
"We are proud of this revolution but Benghazi must stand up for its rights and demand them," a woman at the podium shouted to the audience who cheered and whistled.
RESENTMENT OF TRIPOLI
The mood was mixed between those happily waving flags and singing the national anthem, their faces painted with the Libyan flags, and others standing soberly watching.
"I am not celebrating, I am not carrying a flag," said Ahmed al-Mijbari as fireworks exploded over his head. "I am here stranding for my right, for the east and to put a stop to centralization."
A few feet away Iman Bugaighis, a professor at the University of Benghazi, was out to celebrate.
"I was worried something may happen today," she said. "But I am here to show my happiness at our revolution and celebrate with my people."
Many Libyans, particularly those in the east, have been urging citizens to take to the streets to voice their discontent over the Tripoli government's inability to provide security by disarming militias or moving towards writing a constitution.
In Benghazi, the base of the rebel leadership during the 2011 war, daily life has been disrupted by violence and unrest on top of demands for greater autonomy or investment in a region 1,000 km (620 miles) east of Tripoli.
There are calls in the region - where most of Libya's oil wealth lies - for a return to a federal political structure and more regional autonomy, which Libya had before Gaddafi seized power in a coup in 1969.
Federalist groups resent criticism from the central government and religious leaders accusing them of calling for a separation of the east from the west of Libya, something they deny they want.
"We have been demonised in the state media as traitors and if anything goes wrong on February 15 we will be blamed for it, so it is better if we stay home," Ragas said.
But while federalists did not turn out as an organised force, many of those celebrating sympathised with them.
"The people in power in Tripoli are forcing us into federalism," said Majdi al-Mosmari.
"REVOLUTION NOT OVER"
The over-arching issue is what status Benghazi will have in the new Libya.
"Benghazi is the spark that started the revolution two years today, and yet we still suffer from a central government and ignorance from the congress," said one man.
"We haven't realised the revolution yet."
Just on the outskirts of the demonstration, and as people poured into the courthouse yard, there were gunshots in the air as groups of armed men confronted each other.
Security is a particular headache in Benghazi, where violence against foreigners and police assassinations by Islamist militant groups have become common.
On Jan. 25, Britain urged its nationals to leave Benghazi, citing a "specific and imminent" threat to Westerners days after a deadly attack by Islamist militants on a natural gas complex and taking of hostages in neighbouring Algeria.
In September, civilians stormed militia bases in Benghazi after a militant assault on the U.S. diplomatic mission in which the U.S. ambassador was killed. It happened after an anti-militia "Save Benghazi" rally.
Fearing a repeat, militias have been keeping a low profile in the run-up to the anniversary weekend, some of them removing weapons from their bases. More security checkpoints have been set up around town.
As part of the increased security measures over the weekend, Prime Minister Ali Zeidan said overland borders with Tunisia and Egypt would be closed. (Editing by Andrew Roche)