AWJA, Iraq (Reuters) - The U.S. army said on Monday it will remove a razor wire fence it put up around Saddam Hussein home village because it believes last month's capture of the former Iraqi leader has reduced the threat of insurgency.

"In the next weeks, we will hire contractors and take down the wire," Lieutenant Colonel Steve Russell, the U.S. commander of the area, told a meeting of local tribal elders.

Awja, near Tikrit, had been fenced off by U.S. troops since October, and its 4,000 residents have been allowed access to the village through a single gap in the fence after they show their papers at an army checkpoint.

Regular patrols by troops stationed inside the village ensure no one can come or go without the U.S. Army's permission.

The decision to ease restrictions was taken after the capture of Saddam, whose rise to leadership of Iraq was mirrored by Awja's transformation from a collection of mud huts into a village of substantial houses.

The soldiers and members of the U.S.-trained Iraq Civil Defense Corps who operate the Awja checkpoint started easing restrictions on Sunday, waving through drivers who slowed down, ready to show their identity cards.

Many of Saddam's close relatives had houses in the village and U.S. troops believe it was a source of funding for forces opposed to the occupation.

U.S. troops say elders in the village are cooperating with the occupation authorities, key to getting the fence lifted.

But the village walls are still covered in anti-American graffiti, most of which has been spray-painted over by troops.

One resident, who declined to give his name but said he spoke for "all good people of Iraq," pointed to the fence and said "Gaza, Palestine." He was referring to the coastal Palestinian area completely fenced off by Israel.

In broken English he shouted at a group of western reporters what he said was the view of the people of Awja: "USA not come here for freedom, not for Saddam Hussein, but for oil."