By Daren Butler
ISTANBUL (Reuters) - Turkey's military and political leaders face a battle to restore order in NATO's second-biggest army Monday at a military council overshadowed by the resignation of its top four generals in protest at the jailing of hundreds of officers.
The long-running strains between the secularist military and Islamist-rooted government boiled over Friday when Chief of General Staff Isik Kosaner stepped down, along with the army, navy and air force commanders, leaving the armed forces in disarray.
Prime Minister Tayyip Erdogan, who will chair the four-day Supreme Military Council (YAS), has moved quickly to designate a successor to Kosaner and will be keen to smooth over a row which financial markets will be monitoring closely Monday.
President Abdullah Gul has denied any crisis and Erdogan's regular address to the nation Saturday focused on plans for a new constitution in the EU-candidate country, touted as a democratic model for a region in turmoil.
The resignations will enable Erdogan to consolidate control over a once-omnipotent military, which staged a series of coups since 1960 but whose power has been curbed by EU-backed reforms since pushing an Islamist-led government from power in 1997.
But the walkout has clouded the start of Erdogan's third term in office after an election victory in which his AK Party won 50 percent of the vote. It may also entrench Turkey's deep polarization between government supporters and opponents.
The YAS, which meets twice yearly to decide key promotions, faces a challenge to fill top military posts as the government opposes some leading candidates while others are on trial accused of seeking to overthrow the government.
Former gendarmerie chief General Necdet Ozel was named ground forces head and overall acting chief after Kosaner quit, but will only take over the armed forces after the YAS, said Milliyet columnist Fikret Bila, who has close military ties.
Bila said the other three top posts will also remain vacant until YAS ends. With another top general in jail, five seats among the 14 top generals are set to be empty at the meeting.
"The most keenly awaited issue is who will be appointed to head the land forces command," Bila said, noting the government is seen opposing some of those in line for the post.
Potential candidate General Saldiray Berk is likely to be ruled out as a defendant in a trial related to the alleged coup-plot "Ergenekon" conspiracy.
President Gul is not keen on a general who refused to shake the hand of his headscarved wife, and one who refused to meet him when Berk was serving in northern Cyprus, media said.
"If seniority is not respected, there could be further retirement requests," Bila said.
KEY CANDIDATES ACCUSED
The commander of Turkey's military academies General Bilgin Balanli, previously in line to take over the air force, is in jail and among 200 officers charged with involvement over the alleged "Sledgehammer" coup plot.
The alleged plot, including plans to bomb historic mosques in Istanbul and trigger conflict with Greece, centers around a 2003 military seminar. Officers say it was just a war games exercise and that evidence against them has been fabricated.
The Aegean Army commander may also not attend as he is among 22 people facing arrest over claims the military set up anti-government websites - a more recent case which is viewed as contributing to the decision by the top brass to walk out.
In his farewell message Friday, Kosaner said the jailing of 250 soldiers in the coup plot cases was legally unacceptable and that repeated bids to resolve the issue had failed.
"Despite their being no definitive judicial ruling against them, 14 jailed generals and admirals and 58 colonels ... have been punished in advance and lost their right to be assessed at this year's Supreme Military Council," Kosaner said.
This week's meeting coincides with start of the Muslim holy month of Ramadan and President Abdullah Gul is expected to hold a fast-breaking dinner for the YAS members at the Cankaya presidential palace in Ankara Wednesday evening.
The YAS decisions will be presented to Gul for approval on Thursday. No major statements are expected until then.
Investors will be closely watching for any fallout in financial markets Monday morning after the lira initially fell after the news broke early Friday evening.
But market attention is likely to focus more on debt woes in the United States and Europe, with investors looking beyond the immediate disarray to long-term military reform.
"I don't think the resignations will have a major impact on markets," said Altug Dag, a trader at EFG Istanbul Securities.
"I see this as positive in the medium to long term because the government is restructuring the army as they wish and this reduces the potential for possible future disputes," he said.
(Additional reporting by Seda Sezer; Writing by Daren Butler; Editing by Jon Hemming)