By David Alexander

BRUSSELS (Reuters) - Defense Secretary Leon Panetta urged NATO allies on Wednesday to avoid sharp cuts in defense spending, pointing to this year's war in Libya as an example of NATO's vital role in responding to global military crises.

NATO, whose warplanes have bombed Libya since March in line with a U.N. resolution authorizing military action to protect civilians, is under pressure to find ways of offsetting the impact of tighter budgets on both sides of the Atlantic.

"We cannot afford for countries to make decisions about force reductions in a vacuum, leaving neighbors and allies in the dark," Panetta said in his first speech in Europe since becoming Pentagon chief.

Panetta prodded NATO allies to hold defense spending at current levels and said they should coordinate any cuts to "avoid surprises" that could endanger each other.

His remarks echoed those of former Defense Secretary Robert Gates in his last speech in Brussels before leaving office, when he bluntly warned that NATO had become a two-tiered alliance divided between those who bear the burden and those who reap the benefits without sharing the costs.

But Panetta took a softer approach, balancing concern about the shortage of equipment and personnel and the low level of defense spending in some countries with praise for the alliance's accomplishments in Libya and Afghanistan and the need to cooperate in the future.

"We live in a world of growing danger and uncertainty," he said in his address to Carnegie Europe, the Brussels branch of the Carnegie Endowment for International Peace think tank.

"We cannot predict where the next crisis will occur but we know that we are stronger when we confront these threats together."

Panetta said the war in Libya showed NATO could swiftly and decisively mount a sustained and effective response to a military crisis with Europe in the lead role.

But the effort, in which the alliance used air power to protect civilians from forces supporting Libyan leader Muammar Gaddafi, also illustrated "growing gaps that must be addressed," Panetta said, including shortfalls in capabilities.

"NATO had a significant shortage of well-trained targeting specialists, and the United States had to make up the difference," he said.

"But nowhere were the gaps more obvious than in critical enabling capabilities -- refueling tankers, the provision of intelligence, surveillance, and reconnaissance platforms such as Global Hawk and Predator drones."

"Without these capabilities, the Libya operation would have had a very difficult time getting off the ground or being sustained," he said.

Panetta's remarks came ahead of a two-day NATO defense ministers meeting in Brussels this week.

The Pentagon has been asked to cut some $350 billion in planned national security spending over the next decade. Panetta and top military leaders say those cuts will be difficult and warn against additional spending reductions that could cut Pentagon outlays by nearly $1 trillion.

The United States backs NATO Secretary-General Anders Fogh Rasmussen's "Smart Defense" policies aimed at encouraging the members to identify projects in which they can cooperate to make best use of resources at a time of severe economic austerity.

(Editing by Maria Golovnina)




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