DUBAI/LONDON - Al Qaeda's North African wing said on Wednesday it had carried out its threat to kill a British hostage it was holding in the Sahara.

Britain said it had reason to believe the hostage, Edwin Dyer, had been killed and Prime Minister Gordon Brown condemned the killing as a barbaric act of terrorism and said the killers would be hunted down.

An official source in Algeria told Reuters: The Briton, according to our information, has been killed by AQIM (al Qaeda in the Islamic Maghreb) in Mali.

The group had said it would kill the Briton if the British government did not release Abu Qatada, a Jordanian Islamist it is holding in prison.

Dyer was killed on May 31 after a second deadline for the group's demands expired, it said in a statement on a website used by al Qaeda-linked groups.

The British captive was killed so that he, and with him the British state, may taste a tiny portion of what innocent Muslims taste every day at the hands of the Crusader and Jewish coalition to the east and to the west, the statement said.

The announcement of the killing came as U.S. President Barack Obama headed to the Middle East hoping to start mending U.S. ties with the Islamic world in a speech that will tackle issues including extremist violence.

Al Qaeda's top messages are first, that a day before his expected speech to the Muslim world Obama must understand that al Qaeda is a force in the region that cannot be ignored, Hamid Ghomrassa, an expert in security issues who writes for Algeria's El Khabar newspaper, told Reuters.

And second, that al Qaeda's threats should be taken seriously, and from now on the West should understand that paying ransoms to get back hostages is the only way to deal with (AQIM leader) Abdelmalek Droukdel, he said.

It was the first time AQIM has killed a hostage.

This marks a big change. It will change a lot of things as this is the first time someone has actually been killed, said Jeremy Keenan, author of 'The Dark Sahara -- America's War On Terror In Africa'.

The British Foreign Office said Dyer was kidnapped on the border between Niger and Mali in late January, but declined to give any more details about him.

MUSIC FESTIVAL

Dyer was one of a group of European tourists kidnapped after attending a festival of Tuareg culture.

Al Qaeda in the Islamic Maghreb (AQIM) has claimed responsibility for kidnapping two Canadian diplomats and four European tourists in the past five months. The two diplomats and two of the tourists were freed in Mali in April, leaving Dyer and a Swiss citizen in captivity.

Last month, Algerian media said AQIM was demanding 10 million euros ($14 million) for Dyer and the Swiss national.

Salima Tlemcani, an expert in security issues who writes for Algeria's El Watan newspaper, said Dyer had been killed because no ransom had been paid.

It is all about money. The Canadians, the Austrians were released because AQIM got the money it asked for, she said.

Brown said in a statement: We have strong reason to believe that a British citizen, Edwin Dyer, has been murdered by an Al Qaeda cell in Mali. I utterly condemn this appalling and barbaric act of terrorism.

Brown said the killing reinforced Britain's commitment to confront terrorism.

They will be hunted down and they will be brought to justice, he told parliament. There will be no hiding place.

The Swiss Foreign Ministry called the killing an extreme violation of human dignity and said it was working with President Amadou Toumani Toure of Mali to free the Swiss hostage.

Abu Qatada, named by a Spanish judge as the right-hand man in Europe of Osama bin Laden's al Qaeda network, has been held in Britain since 2005. He denies belonging to the group.

Britain has described him as a significant international terrorist but said it does not have enough evidence to put him on trial.

Britain's highest court ruled in February he could be deported to Jordan despite fears he may be tortured there.

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