UPDATE 4-Obama picks Hagel for defense, Brennan for CIA

* Faces Senate battle on two fronts

* Hagel faces questions on Israel, gays

* Brennan's previous CIA tenure under scrutiny

* Moves fill out reshuffled national security team

WASHINGTON, Jan 7 (Reuters) - President Barack Obama on

Monday nominated former Republican Senator Chuck Hagel as his

next defense secretary and counterterrorism adviser John Brennan

to head the CIA, potentially setting up at least one Senate

confirmation battle and establishing a tough tone to start his

second term.

Obama moved ahead with the picks despite concerns raised by

senators on both sides of the aisle about them. Hagel has made

controversial comments about Israel and gays while Brennan faces

questions over his views as a CIA official in the Bush

administration on the use of so-called enhanced interrogation

techniques, widely considered torture, on terrorism suspects.

"I hope that the Senate will act on these confirmations

promptly. When it comes to national security, we don't like to

leave a lot of gaps between the time that one set of leaders

transitions out and another transitions in. So we need to get

moving quickly on this," Obama said in announcing them.

The addition of Hagel and Brennan, along with Democratic

Senator John Kerry as nominee for secretary of state, rounds out

Obama's national security team as he faces daunting challenges

of winding down the war in Afghanistan, dealing with the Iranian

nuclear standoff and curbing military spending.

Hagel, 66, appeared to face the tougher fight for

confirmation in the Democratic-controlled Senate, in spite of

Obama's warm words of praise for the former Nebraska lawmaker as

someone "who bears the scars and the shrapnel from the battles

that he fought" in the Vietnam War.

Some Democratic senators offered only tepid support for

Hagel and many Republicans expressed deep concerns. The

pro-Israel lobby in Washington, which Hagel once criticized, was

gearing up to fight him.

"Chuck Hagel, as a former colleague and a patriot with a

decorated service record, has earned the right to nothing less

than a full and fair process in the Senate. I look forward to

fully studying his record and exploring his views," Democratic

Senator Charles Schumer of New York said.

In an interview published as his nomination was being

announced, Hagel told the Lincoln Journal Star, a Nebraska

newspaper, that critics had "completely distorted" his record

and said there was "not one shred of evidence that I'm

anti-Israeli."

He expressed "unequivocal, total support for Israel" and

backed tough sanctions against Iran over its nuclear program.

Brennan, on the other hand, appeared to be generating less

outright opposition, suggesting a possible easier path to

confirmation. He withdrew his name from consideration for the

top CIA post in 2008 in the face of criticism over comments

suggesting the harsh interrogation methods produced useful

information from detainees.

There is no evidence Brennan was directly involved in the

Bush-era program, which included techniques such as

waterboarding, a form of simulated drowning, and sleep

deprivation.

As White House counterterrorism chief, he was a key player

in the secret operation that led to the death of Osama bin Laden

in 2011, and he has been at the heart of policies dealing with

drone strikes in Yemen, among other issues.

'ANOTHER POLITICAL FIGHT'

Brennan, 57, would replace disgraced retired General David

Petraeus, who got entangled in a sex scandal as CIA director and

resigned in November after admitting to an affair with his

biographer.

"Clearly, Mr. Brennan has the qualifications and expertise

to be the next CIA director," said Democratic Senator Dianne

Feinstein, chairwoman of the Senate Intelligence Committee,

which will consider Brennan's nomination. "He has longstanding

knowledge of the operations of this critical agency and also the

strength to see that it follows the law. I believe he will be a

strong and positive director."

Obama's decision to go ahead with the picks made clear he

was ready to fight for his personnel and eager to put behind him

a flap over his preferred choice for secretary of state, U.S.

Ambassador to the United Nations Susan Rice. Rice pulled out of

consideration in the face of criticism over her descriptions of

the deadly attacks on the U.S. diplomatic mission in Benghazi,

Libya.

Mindful of the concerns about both Hagel and Brennan on

Capitol Hill, Obama spoke at length about each in a White House

ceremony, then turned over the microphone to outgoing Defense

Secretary Leon Panetta and acting CIA Director Mike Morell to

provide testimonials about their chosen replacements.

Panetta, heading home after decades of public service, most

recently as defense secretary and CIA director, expressed

lighthearted exasperation with the partisan divide in

Washington, saying he would go back to his California walnut

farm where he would be "dealing with a different set of nuts."

While senators are normally inclined to give the benefit of

the doubt to someone from their ranks, this has not been the

case with Hagel, a maverick former senator.

As Hagel's name was floated for the post in recent weeks,

many Republicans and some Democrats reacted with alarm,

expressing deep concerns about past statements the moderate

Republican has made. He has offered controversial views on key

U.S. ally Israel, once complaining about the power of "the

Jewish lobby" in Washington and urging direct talks with Iran

over its nuclear ambitions.

Past remarks seen as disparaging to gays have drawn the ire

of gay rights groups. A group called the Log Cabin Republicans

published a full-page ad in The Washington Post that attacked,

for example, Hagel's 1998 opposition to an "openly, aggressively

gay man" to serve as a U.S. ambassador. He has since apologized

for the statement.

Republican Senator Rob Portman of Ohio said he was surprised

and disappointed that Obama had moved ahead with the Hagel

nomination.

"I don't understand why the administration is looking to

pick yet another political fight instead of working with

Congress to solve some of the very real problems we face as a

country," he said.

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