WASHINGTON (AP) — Blackwater Worldwide’s legal woes haven’t dimmed the company’s prospects in Afghanistan, where it’s a contender to be a key part of President Barack Obama’s strategy for stabilizing the country.

Now called Xe Services, the company is in the running for a Pentagon contract potentially worth $1 billion to train Afghanistan’s troubled national police force. Xe has been shifting to training, aviation and logistics work after its security guards were accused of killing unarmed Iraqi civilians more than two years ago.

Yet even with a new name and focus, the expanded role would seem an unlikely one for Xe because Democrats have held such a negative opinion of the company following the Iraqi deaths, which are still reverberating in Baghdad and Washington.

During the presidential campaign, then-Sen. Hillary Rodham Clinton, now Obama’s secretary of state, backed legislation to ban Blackwater and other private security contractors from Iraq.

Xe eventually lost its license to operate as guardian of U.S. diplomats in Iraq and the State Department, with Clinton at the helm, elected not to rehire the company when the contract expired in 2009. Delays in getting a new company in place led to a temporary extension of the State contract.

A federal judge on New Year’s Eve dismissed criminal charges against five of the Blackwater guards, citing repeated missteps by federal prosecutors. The Iraqi government has vowed to pursue the case, a new strain on relations between the U.S. and Iraq.

Xe on Wednesday reached a settlement in a series of civil lawsuits in which dozens of Iraqis accused the company of cultivating a reckless culture that allowed innocent civilians to be killed. On Thursday, however, two former Blackwater contractors were arrested on murder charges in the shootings of two Afghans after a traffic accident last year.

Despite the scrutiny, the U.S. relies heavily on Xe — pronounced “zee” — for support in Afghanistan and the workload may grow significantly.

Xe spokesman Mark Corallo declined to comment on whether the company, based in Moyock, N.C., is bidding for the Afghan police training contract. But a U.S. official knowledgeable of the deliberations said Xe is competing. The official requested anonymity to discuss sensitive information about the federal contracting process.

Xe provides security services in Afghanistan, though on a smaller scale than it did in Iraq. As of November, Xe had more than 200 security personnel on the ground in Afghanistan, according to documents highlighting Xe’s operations.

Two Xe guards were killed Dec. 30 during a suicide bombing attack at a CIA base in southeastern Afghanistan, again raising questions about services the company provides for the CIA.

Late last year, CIA Director Leon Panetta terminated the use of Xe personnel in loading and other logistics for airborne drones used to hunt militants in Pakistan.

Xe is also a prolific provider of aviation services in Afghanistan, where travel on land is complicated by the country’s rugged terrain and roadside bombs. In airplanes and helicopters, Xe has ferried thousands of passengers and millions of pounds of cargo and mail under contracts with U.S. Transportation Command with a potential value of more than $750 million, according to the company documents.

In 2009 alone, Xe projected total revenues at $669 million, the documents state, and three-quarters of the total stems from federal contracts to support U.S. troops in Afghanistan and Iraq.

The Afghan national police training contract is expected to be awarded soon and Xe is among five companies eligible to compete.

Obama is ramping up efforts to expand and improve the Afghan army and national police into a force able to handle the country’s security burden so U.S. troops can begin withdrawing in July 2011. The private sector’s help is needed because the U.S. doesn’t have a deep enough pool of trainers and mentors with law enforcement experience.

Under an existing defense contract, Xe already trains the Afghan border police — an arm of the national police — and drug interdiction units in volatile southern Afghanistan, according to the documents.

The Defense Department’s plan is to fold the border police training into the broader contract.

Charles Tiefer, a professor of government contracting at the University of Baltimore Law School, says Xe’s foothold in Afghanistan could give it an edge over other competitors. And defense officials considering bids for the police training work may pay more attention to Xe’s resume in Afghanistan than as a security contractor in Iraq, he added.

“Blackwater’s current contract for the border police means it already has assets — experience, a proven record and existing capacity and personnel in Afghanistan — for a contract to train the Afghan national police,” said Tiefer, a member of the independent Commission on Wartime Contracting.

The top military commander in Afghanistan, Gen. Stanley McChrystal, wants to build the Afghan national police to a force of 160,000 by 2013 — up from the roughly 94,000 now.

The Afghan army is in better shape than the national police, an organization riddled with corruption and generally unable to control crime or combat the Taliban.

At a hearing in December held by the Commission on Wartime Contracting, Fred Roitz, Xe’s executive vice president of contracts and sales, sought to burnish the company’s credentials. He said the company trains Afghan law enforcement units to operate effectively “in one of the most dangerous border regions in the world.”

Roitz added that Xe has a new chief executive officer, Joseph Yorio, who replaced the company’s founder, Erik Prince, in March. Prince’s decision to step aside underscored the company’s efforts to distance itself from the Blackwater brand.

Since 2003, DynCorp International of Falls Church, Va., has held a large State Department contract for training Afghanistan’s national police. The most recent installment of the training contract was awarded in August 2008 and it generates about $20 million in revenue a month for DynCorp, according to company spokesman Douglas Ebner.

But a decision by McChrystal to give U.S. military officials control over all police training contracts is ending DynCorp’s run and creating a major opportunity for Xe and the other companies.

DynCorp has filed a protest with the Government Accountability Office, alleging that the approach is “procedurally and legally flawed,” according to company vice president Donald Ryder.

Military authorities gave responsibility for managing the expanded contract to a Navy office in Dahlgren, Va. The Counter NarcoTerrorism Technology Program Office has five pre-approved vendors: Xe, Lockheed Martin, Northrop Grumman, Raytheon and ARINC Engineering Services.