KHARTOUM, 1 November (IRIN) - Reconciliation talks between Somalia's transitional government and the country's politically influential Union of Islamic Courts (UIC) stalled in Sudan for a second day on Tuesday, raising fears that attempts to broker a peace deal between the two rival groups was on the brink of collapse, officials said.

The UIC delegation has insisted that Ethiopian troops be withdrawn from Somali territory before they sit down to talks with representatives of the Transitional Federal Government (TFG). The UIC claims the troops have been deployed inside Somalia to support the TFG. The TFG, meanwhile, has denied the presence of Ethiopian troops, claiming that the only Ethiopians in the country are military instructors.

On Tuesday, diplomats expressed frustration at the lack of progress in the third round of the talks between both parties in the Sudanese capital, Khartoum, which was due to open on Monday.

"It's important that the parties meet, that they continue the dialogue and [that] they continue to try to find peace in Somalia," said Rina Kristmoen, an observer from the Norwegian Embassy in Kenya.

Squabbles over protocol issues also compounded the problem.

The League of Arab States is set to co-chair the talks along with Kenya, the current chair of the regional Intergovernmental Authority on Development (IGAD), but the TFG expressed reservations over the League's neutrality.

The UIC, for its part, has objected to Kenya's mediation, saying the country is biased in favour of the TFG, and that Kenya is one of the states favouring the deployment of foreign troops to Somalia, an idea strongly opposed by the Islamic Courts.

"The deadlock is over protocol now," Kristmoen said. "To chair the meeting is only to open the meeting. It's not a very big issue. It's a little unfortunate that it has taken so long to solve it."

Diplomats are pressing both parties to agree to a face-to-face meeting. However, on Tuesday, both delegations remained in their hotel rooms in Khartoum, refusing to come to the bargaining table.

With Somalia on what appears to be the brink of a major military confrontation between the two groups, observers saw the talks in Khartoum as the last opportunity to avert a violent conflict.

The UIC took control of the capital, Mogadishu, in early June and has continued to extend its authority over much of southern and central Somalia, challenging the legitimacy of the TFG, which was set up in 2004 in a bid to restore law and order after 15 years without a national government.

The TFG has claimed that Eritrea - a bitter foe of Ethiopia since the 1998-2000 border war between the two countries - had sent armed forces to Somalia to back the UIC. Observers fear fighting could ignite a proxy war between Ethiopia and Eritrea on Somali soil.

AFP - November 1, 2006 NAIROBI -- Eritrea on Tuesday renewed its verbal assault on the United States for accusing it of opening a second front in its border dispute with arch-foe Ethiopia in Somalia.

A day after unleashing a blistering barrage of criticism at Ethiopia and the United States for allegedly opposing Somalia's powerful Islamist movement against the country's weak transitional government, Asmara repeated the charge.

In a statement posted on an official website, the Eritrean foreign ministry decried a US warning for Eritrea and Ethiopia not to use Somalia as a proxy battleground.

"The war that ... still continues in Somalia is between the Somali people and the US administration under the guise of 'fighting terrorism' through its mercenary agent, the [Ethiopian] regime, and warlords," it said.

"The US administration's continued resort to misleading statements ... obviously raises the question: who is the Bush administration trying to deceive?" the ministry asked in the brief statement.

Somalia's Islamists, some of whom the United States accuses of having ties to Al Qaeda, seized Mogadishu from US-backed warlords in June and now controls most of southern and central Somalia, where it enforces strict Sharia law.

US ally Ethiopia and Eritrea, which fought a bloody and unresolved 1998-2000 border war, are feared to be using Somalia as another venue for their dispute, in which Asmara accuses Addis Ababa of violating a peace deal.

Mainly Christian Ethiopia, which backs the Somali government, denies reports it has sent thousands of troops to Somalia to support the administration but acknowledges sending military advisers to protect it from "jihadists."

Meanwhile, Eritrea is accused by UN monitors of violating a 1992 arms embargo on Somalia by supplying weapons to the Islamists but has denied charges it has some 2,000 troops on Somali territory.

On Monday, amid continuing unsuccessful efforts to bring the Islamists and the Somali transitional government to the table at peace talks in Khartoum, Washington warned Ethiopia and Eritrea not to take their dispute to Somalia.

"We would hope that states not try to use Somalia as a proxy for any of their disputes," State Department spokesman Sean McCormack said. "It would be rather unfortunate for Somalia, as well as other countries in the region." Shortly before he spoke, the Eritrean foreign ministry issued a statement accusing Ethiopian Prime Minister Meles Zenawi of being a US stooge in a war against the Islamists and warned he was "playing with fire." Soaring tensions between Somalia's government and the Islamist have sparked fears of an all-out war that could engulf the Horn of Africa region in conflict.