ALGIERS, February 19, 2009 (Reuters) - Algerian President Abdelaziz Bouteflika should use surplus oil and gas revenues to improve life for a younger generation that has grown tired of political speeches, a government minister and Bouteflika ally said.

Bouteflika launched a bid for a third term in office last week and promised to spend $150 billion to help a country still struggling to recover from a brutal civil conflict in the 1990s.

Successive amnesties have led thousands of Islamist rebels to disarm and the government has been upgrading infrastructure, building hospitals and schools and improving housing.

But analysts say it will be hard to defeat remaining al Qaeda-aligned rebels and press ahead with national development unless the government re-connects with an alienated younger generation that sees it as self-serving and aloof.

Algerian officials say poverty does not produce terrorism.

"Little has been done to improve daily life conditions for the young," said Bouguerra Soltani, minister of state and head of the Society Movement for Peace (MSP), a government coalition partner which is backing Bouteflika's re-election bid.

"This is why the period 2009-2014 should be dedicated to the young," he told Reuters in an interview late on Wednesday.

Soltani said young people knew the government had amassed $200 billion during the period of high energy prices, a record for the OPEC-member country.

"The young understand practical language and reject political speeches," he said. "The young expected this was an opportunity to solve social problems including employment, stability and justice. A lot of youngsters are still looking for a job, are not stable and are still suffering injustice."

The moderate Islamist MSP was created by Mahfoud Nahnah, a member of the Egypt-based Muslim Brotherhood, and draws most of its support from an urban middle class of small business owners.

Bouteflika's supporters say he deserves to be re-elected in April elections after steering the country towards stability during his 10 years in power.

No weighty opponent has emerged to challenge the head of state, who is widely tipped to win election and stay in power until 2014. His bid was made possible after lawmakers scrapped a rule limiting presidents to a maximum of two five-year mandates.

The lack of serious challengers has prompted some government critics to predict that Algerians will boycott the polls en masse in protest at what they see as a meaningless exercise.

Legislative elections in 2007 saw a record low turnout but Soltani said more Algerians would vote in April as public interest in presidential elections was much greater.

"A 60 percent turnout will be acceptable. Not less," he said.

Justifying his support for Bouteflika, Soltani said the head of state had met most of his goals for developing the country and "we thought we should support him for a third term so that he can finish the job".

He rejected the arguments of opposition figures that the elections would be a pointless exercise marred by fraud.

"There is no room for fraud now," said Soltani. "I suspect they are lightweights fearing a heavyweight like Bouteflika."

He said Bouteflika should make one final offer to Islamist rebels to surrender under a policy of national reconciliation.

"Bouteflika's next step is to promote national reconciliation," said Soltani. "That means offering rebels a last chance to give up the fight. We will give you (rebels) all your political, civic and economic rights. But if you reject the offer, we will exterminate you."