* Russian court to hear appeal against theft conviction
* Navalny was sentenced to five-years prison in July
* Analysts say Kremlin calculating outcomes
By Steve Gutterman
MOSCOW, Oct 16 (Reuters) - Convicted at a trial he describes as Vladimir Putin's revenge for his political challenge, Russian opposition leader Alexei Navalny faces five years in prison if his appeal against a theft conviction is rejected on Wednesday.
The court hearing in the remote city of Kirov also poses a conundrum for President Putin.
Jailing Navalny would keep Putin's most prominent critic out of elections for years, curtailing any threat from a young rival with presidential ambitions who scored a strong second-place showing in a Moscow mayoral vote last month.
But it could also revive street protests by Putin's opponents and human rights activists over what they see as a clampdown on dissent since the 61-year-old president started a six-year third term in 2012.
While Putin denies exerting influence over the courts, many Russians suspect that rulings in high-profile cases are dictated by the Kremlin and result from careful political calculation.
"The Kremlin has an unpleasant decision to make," said Dmitry Oreshkin, a political analyst.
A ruling upholding the five-year sentence would be seen by many as evidence that tough tactics will continue despite signals meant to suggest a let-up, such as Putin's promise of a prisoner amnesty later this year.
A blogger against corruption among Russia's elite, Navalny helped lead the biggest protests of Putin's 13-year rule, which were stoked by allegations of fraud in a December 2011 parliamentary election.
The protests have faded, but Navalny has emerged as the main opposition leader, making his trial the most closely watched in Russia since jailed former oil tycoon Mikhail Khodorkovsky's second conviction in 2010.
Accused of stealing timber while working as an adviser to the governor of the Kirov region in 2009, Navalny - who denies wrongdoing - was convicted of large-scale theft in July and sentenced to five years in prison.
FREE FOR NOW
But he was unexpectedly freed from custody the following day to allow him to continue his campaign for Moscow mayor.
Some analysts say the Kremlin was betting he would suffer a humiliating defeat, but he won 27 percent and nearly forced the incumbent, Putin ally Sergei Sobyanin, into a runoff.
"It's difficult for the Russian authorities to jail Navalny, because he has won legitimacy in the form of support from 600,000 people who voted for him," said Liliya Shevtsova, a senior associate at the Carnegie Moscow Center thinktank.
Because Navalny's popularity is limited in Russia's far-flung regions and Putin faces no imminent threat to his rule, Shevtsova said that for the Kremlin it would make little sense to "turn Navalny into a Russian Mandela".
While many analysts expect Navalny's conviction will stand, some predict his sentence might be reduced or suspended, keeping him out of prison but also out of elections.
Some cautioned, however, that his chances of staying out of jail should not be overestimated.
"Putin's power structure instinctively follows the standards of the Stalin or Brezhnev era, when inconvenient and critical people were isolated," Oreshkin said. "The temptation to do that with Navalny will be great."
Navalny, who used a smartphone to send tweets during his trial, kept up his anti-corruption campaign on the eve of the hearing with a blog post about an enormous apartment allegedly owned by the wife of an ice hockey star turned lawmaker.
He maintained a wry air on Twitter, writing: "I'm really tired of going to Kirov and it's cold there :("
In response to an invitation to a performance at a Kirov theatre on Wednesday evening, he tweeted: "I'll be there of course".