Iraqi leaders meet to end govt formation impasse

ARBIL, Iraq (Reuters) - Iraqi political leaders began a meeting on Monday that could break an eight month deadlock over the formation of a new government and assure incumbent Prime Minister Nuri al-Maliki a second term.

The meeting, hosted by Kurdish regional president Masoud Barzani in the Kurdish capital Arbil, could last two days and result in a government of national unity that includes Shi'ites, Sunnis and Kurds.

Iraq has been without a new government since an inconclusive March 7 election which gave the cross-sectarian Iraqiya alliance an edge, fuelling tensions just as the sectarian carnage unleashed after the 2003 U.S.-led invasion recedes and U.S. forces prepare for a full withdrawal by the end of 2011.

The next government needs a component that represents the country's minority Sunnis if it is going to try and heal old sectarian wounds. Excluding Iraqiya from power could anger its Sunni voters and reinvigorate a weakened but still lethal Sunni Islamist insurgency.

Iraqiya had said it will not take part in a government led by Maliki and raised the possibility it might boycott a parliament session set for later this week.

But senior leaders of Iraqiya said on Monday they expected they would ultimately agree to link up with Maliki while a group of disenchanted lawmakers within the bloc warned they would split from it if it did not.

Maliki's coalition has merged with other Shi'ite groups and reached deals with minority Kurds, paving the way for him to retain power. It also has assurances of support from small Sunni-based factions.

Iraqiya's likely change of heart was seen as a sign that it now recognises that Maliki's alliance has enough backing to form a government without it.

"There is a tendency to participate in the government," said Osama al-Nujaifi, a senior Sunni Arab leader of Iraqiya. "There are signs of a deal ... There are still discussions about reforms and power sharing."

Under an expected deal, Maliki would remain prime minister and Jalal Talabani, a Kurd, would retain the presidency. Iraqiya could be offered the speaker's post in parliament, the foreign ministry and a role with possibly expanded authority over defence issues, the economy and foreign affairs.

The political leaders want to strike a broad agreement before Thursday's parliamentary session. Parliament has sat only once -- in June for 17 minutes -- since the election.

The country's highest court last month ordered lawmakers to get to work and resume sessions, putting pressure on Shi'ite, Sunni and Kurdish factions to accelerate efforts to reach an agreement.