(This version of the Jan 4th story corrects billion to million in the penultimate graph)

By Stephen Kalin

NORTH OF MOSUL, Iraq (Reuters) - Iraqi army and security forces are working better together in their battle against Islamic State militants and are gaining momentum in the 11-week campaign to retake Mosul, the commander of the U.S.-led coalition backing them said on Wednesday.

During a helicopter tour over recently recaptured areas, U.S. Army Lieutenant-General Steve Townsend said coordination had been largely absent in the first two months of the campaign, when Iraqi forces made slow progress after breaching the city.

Elite counter-terrorism troops entered Mosul from the east and seized a quarter of the city but troops on other fronts stalled, leading to a military pause last month.

Since resuming the offensive last week, the counter-terrorism service, rapid response division and federal police have retaken several eastern districts - despite fierce resistance - and joined flanks in areas that had been vulnerable to attack.

Townsend said Iraqi commanders, with guidance from the coalition, decided two weeks ago that the various pro-government forces would have to coordinate much more closely.

"For about two months ... what we saw is that there wasn't enough synchronization between each of the different attacking axes and forces," he told Reuters after visiting U.S. troops and talking to Iraqi commanders at a coalition outpost north of Mosul.

"Right before Christmas was a decision to huddle a lot more frequently, so they're doing that more."

Townsend said the top Iraqi commanders now all come together every few days - something the U.S. military does daily wherever it operates.

"Before... we were seeing progress mostly on one main axis and halting progress on the others. Now we're actually seeing forward movement on all of the axes in eastern Mosul," he said.

Townsend heads Operation Inherent Resolve, a coalition of military forces from Western and Arab countries that has been bombing Islamic State positions in Iraq and neighbouring Syria since 2014.

It is now providing air support and some ground assistance to the Iraqi assault on Mosul, and has embedded officers with Iraqi commanders to help plan each step of the offensive.

The Mosul assault, involving a 100,000-strong ground force of Iraqi government troops, members of the autonomous Kurdish security forces and mainly Shi'ite militiamen, is the most complex battle in Iraq since the U.S.-led invasion in 2003.

"RESILIENT" ENEMY

An Iraqi victory in Mosul would probably spell the end for Islamic State's self-styled caliphate, which leader Abu Bakr al-Baghdadi declared 2-1/2 years ago from the city's main mosque after Iraqi forces dropped their weapons and fled.

But in recent days, the militants have displayed the tactics to which they are likely to resort if they lose the city, killing dozens with bombs in Baghdad and attacking security forces elsewhere.

Though vastly outnumbered in Mosul, they have used the urban terrain and the cover of a civilian population to manoeuvre, launch attacks and avoid detection.

Townsend said Iraqi forces were doing a better job of defending against suicide car bombs. That had helped stem casualties, which the government does not report but sources said on some days reached a few dozen.

"They (casualties) were daunting in the first few weeks here in the city back in October, early November and I was greatly concerned then. Much less concerned now. They seem to have adapted," said Townsend.

He described Islamic State as a "resilient" enemy but said the group - which has separate cells fighting in dozens of neighbourhoods - appeared increasingly unable to coordinate across different areas it controlled inside Mosul.

He said some senior Islamic State commanders are still directing the battle from inside Mosul but could not confirm whether that included Baghdadi, for whom Washington has offered a $25 million bounty.

"I have no idea where Baghdadi is," said Townsend. "If you get a hint on where Baghdadi is, please let me know so I can kill him."

(Reporting By Stephen Kalin; Editing by Dominic Evans)