NAKHON PATHOM, Thailand, Nov 1 (AFP) - Sri Lankan negotiators meeting for a second round of peace talks made an early breakthrough Friday on rebuilding their war-ravaged nation with foreign funding, even as trouble brewed at home.

Sri Lanka's chief negotiator, G. L. Peiris said the former foes agreed on a blueprint for a system to jointly seek millions of dollars in foreign aid and rebuild areas devastated by decades of ethnic violence.

"We have every reason to be satisfied with the outcome of the talks this morning," Peiris said. "We have come up with a structure that will be acceptable to the international donor community."

The Sri Lankan government and the rebel Liberation Tigers of Tamil Eelam (LTTE) broadly agreed on the need to win foreign aid, but there were sharp differences over the composition and the powers of a joint panel.

Peiris, also the government's constitutional affairs minister, declined to give details of the agreement, but said it would be formally announced at the end of the talks Sunday.

"We have demonstrated that given a spirit of goodwill, we are able to reconcile our differences," he said.

"We went very far this morning. We had three objectives: to make it acceptable to the international community; to see that it is agreeable with the government and the LTTE; and to see that it is within conformity of the Sri Lanka law. We have achieved all three."

Peiris said the agreed structure would have the accountability and transparency demanded by foreign donors expected to meet later this month in Oslo to pledge financial support to underwrite peace on the island.

International humanitarian agencies have also appealed for funding to help resettle the more than 200,000 refugees who have returned to their homes in Sri Lanka's northeast since a truce went into effect February 23.

Both the government and the Tigers sought to rebuild embattled areas and reinforce an atmosphere of normality before hammering out a final political settlement to a conflict that has dragged on for three decades.

More than 60,000 people have been killed in the fighting since 1972.

The second round of Norwegian-arranged talks opened here Thursday amid a spirit of optimism but there were concerns about inter-communal tensions in the Sri Lankan capital, where curfews were slapped for a third day Friday.

Peiris said the unrest was unrelated to the talks but "it is something we need to think about."

The first day's negotiations were overshadowed by a Colombo High Court verdict sentencing the LTTE's supremo Velupillai Prabhakaran in absentia to 200 years in jail for a 1996 bombing.

The government said the court order would not affect the peace process but Tiger delegates have yet to react to the ruling.

Despite the communal clashes and Prabhakaran's sentencing, the two delegations sat down Friday in a spirit of growing friendship, diplomats said.

They focused on security matters in the island's multi-ethnic east where Tiger rebels and Muslims continue to clash despite the truce.

The leader of Sri Lanka's main Muslim party Rauf Hakeem, a government delegate at the talks, held extensive discussions with the LTTE's top military commander, Karuna, the sources said.

"There had been a lot of promises and assurances given by Karuna," Hakeem said. "We will have to see how it is done on the ground."

The teams were also to discuss "high security zones" -- areas around defence facilities -- with a view to dismantling installations of both the government and the LTTE to allow civilians to return to their homes.

aj/sls/lg AFP

Copyright (c) 2002 Agence France-Presse
Received by NewsEdge Insight: 11/01/2002 04:51:04