WASHINGTON (Reuters) - President Barack Obama appeared poised on Friday to pick former Republican Senator Chuck Hagel as the next U.S. defence secretary and the announcement may come early next week.

U.S. President Barack Obama (2nd R) and Vice President Joe Biden (L) meet with co-chairmen of the President's Intelligence Advisory Board former Senator Chuck Hagel (R-NE) (R) and former Senator David Boren (D-OK) and senior leadership of the intelligence community in the Cabinet Room at the White House in Washington October 28, 2009. REUTERS/Jim Young

Sources on Capitol Hill and in the national security community said all signs were pointing to Hagel as Obama's choice to replace current Defence Secretary Leon Panetta.

The choice would likely set up a confirmation battle in the Senate over whether Hagel strongly supports key U.S. ally Israel. Gay rights groups have also complained about some of Hagel's past remarks, which were seen as disparaging to them.

However, if Obama were to back down from picking Hagel, it would be the second embarrassment for him, after his preferred candidate for secretary of state, U.S. ambassador to the United Nations Susan Rice, withdrew from consideration in the face of determined opposition.

The White House insisted Obama had not yet made a final decision on Hagel, but a source close to the situation said the White House had signalled to Hagel's camp that he remained Obama's leading candidate for the post.

The source said the process was on track for likely nomination announcement on Monday or Tuesday.

It was not known whether Obama had finalized his decision or if Hagel had been directly informed. The source said Hagel's closest advisers had received "messages of reassurance" in recent days in the face of a campaign by Hagel's critics aimed at derailing his nomination.

Hagel has already faced an onslaught over his record on Israel and Iran led by some pro-Israel groups and neo-conservatives.

He has also come under fire from gay rights groups for remarks questioning whether an "openly aggressively gay" nominee could be an effective U.S. ambassador. Hagel last month issued an apology for the comment, made in 1998, saying it was "insensitive."

A Republican operative involved in the opposition to Hagel's nomination predicted he would have trouble getting confirmed by the Senate. "It's going to be a vicious fight," the operative said.

(Additional reporting by Susan Cornwell. Editing by Warren Strobel and Christopher Wilson)

• Travel Picks: Top 10 golf resorts around the world
• Chinese premier criticizes EU move on trade measures
• Justice Department opposes AMR's $20 million severance for CEO Horton
• News Corp to take charge of up to $1.4 billion this quarter
• Wall Street Week Ahead: Investors look for signs in the rally's break
• Unhappy with how your fave series is faring? Amazon gives you a say
• Visa, Mastercard ask U.S. court to declare card fees are lawful
• Wall Street posts first weekly loss since mid-April on Fed angst
• IMF's Lagarde escapes formal investigation in court
• Politics of development pays dividend
• A thematic play seen
• Sarawak counters hogging the limelight
• Getting GST acceptance will be tough
• A yen for the unloved dollar standard
• Bitten by the music bug

• French soldier stabbed on patrol in Paris
• Thousands run final mile of Boston Marathon as memorial
• Trio arrested over London soldier murder

• Sweet revenge as Froch defeats Kessler
• Pandelela-Mun Yee and Yan Yee-Jun Hoong bag bronze medals in Mexico
• World No. 1 Nicol sinks Waters to reach British Open final
• China confident of sweeping aside their final opponents
• Koreans in the final despite Dong-keun’s loss
• Macdonald and Marques share the lead
• McIlroy among big names who miss the cut as Molinari leads
• Kuchar leads in weather-hit second round
• Two tied at the top as rain stops play in the Bahamas
• Nico Rosberg revels in the rain as Mercedes stamp their mark
• Whitmarsh: McLaren’s hopes were too high this season
• Affendi brushes off hand injury to win CP130 race in Terengganu
• Hafizh needs to step up a gear after coming in fifth
• Vignesa right on track to retain GT Open title
• Dragons’ Melton confident of getting the better of Pringle in Game 2

• Please wait.

• It takes nearly 72 hours to get a new polycarbonate passport now
• Too blessed to be stressed
• Indian warships visit Malaysian waters
• ‘Harry Potter Wong’ casts his spell
• Theme parks and long holiday help fill Johor hotel rooms
• Give birth naturally, women urged
• Exemplary educators
• DAP’s Ngeh in hot water over subservient tweet
• Rela man in coma after being rammed by biker
• The Wall Street Journal: Anwar asked Jusuf to broker deal over GE13