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UPDATE 1-France wins Qatar tram deal, discusses Rafale jets

(Adds Hollande quote, background)

PARIS, June 23 (Reuters) - French conglomerates Alstom and Vinci signed a 2 billion euro ($2.72 billion) deal with Qatar on Monday to build a tram system in the future Lusail City, while the two countries also discussed a possible defense contract.

The deal, which will see the light rail system starting to operate in 2018-20, was signed in front of journalists during a visit to Paris by Qatar's emir, Sheik Tamim bin Hamad al-Thani.

One of the Gulf's largest real estate developments, Lusail City is expected to house up to 200,000 people and contain commercial districts including the $275 million Marina Mall project, 22 hotels, four islands and two golf courses.

The estimated $45 billion development will also feature the 80,000-seat Lusail Stadium, where the championship match of the 2022 World Cup soccer tournament will be played.

Qatar has been under fire for its treatment of migrant workers, many of whom are reported to have died on the country's infrastructure projects, but has announced stricter measures for contractors involved in building work for the 2022 tournament.

Asked whether France had raised the issue of worker conditions during the emir's visit, a French official said, "We talk about everything with Qatar. There are no forbidden topics."

Leaders of the two countries also discussed the possible sale of French Rafale fighter jets, built by Dassault Aviation , to Qatar but there was no immediate conclusion.

"They discussed it. Negotiations are continuing," a source close to French President Francois Hollande said following a meeting held during the emir's first official visit to France.

Qatar is planning a significant increase in the size of its air force as the energy-rich Gulf state forges a wider international role after taking part in the 2011 Libya conflict.

Its air force operates a squadron of 12 Dassault Mirage-2000 jets, but is now looking to buy 72 jets in two equal tranches.

"Qatar has always chosen French technology for its armed forces," Hollande said in a speech toasting the visiting Qatari head of state before an official dinner.

The emir made no reference to the Rafale during his remarks, spoken in French.

France is anxious to secure its first export buyer for the Rafale as it also tries to close a long-awaited $15 billion deal with India for a purchase of 126 of the multi-role jets.

In Qatar, Dassault Aviation is competing with the Eurofighter Typhoon - offered by a European consortium of Airbus Group, BAE Systems and Finmeccanica - and the F-15 fighter built by U.S. planemaker Boeing.

(Additional reporting by Tim Hepher; Editing by Maya Nikolaeva, Alexandria Sage)