ReliefWeb

COLOMBO, July 20 (Reuters) - Sri Lanka may be able to save a tsunami aid-sharing pact that donors hoped could jumpstart peace talks with Tamil Tiger rebels, but a court freeze on the deal has further strained a ceasefire already on the brink of collapse.

Sri Lanka's Supreme Court suspended the deal to share $3 billion worth of international aid with the Tigers last week after objecting to plans for a relief fund in the rebel's northern stronghold, a ruling which diplomats and analysts say has further eroded trust between the foes.

But relief agencies say aid was still flowing to the rebel-held north despite the stay order, and will continue to do so unless a rash of killings in the restive east, for which each side blames the other, rekindles a war that has already killed over 64,000 people.

"It is salvageable provided the Tigers' concerns are the welfare of the people and not their own military and political power," said President's Counsel S.L. Gunasekara, a senior lawyer who has advised the government in past negotiations with the rebels.

"Post-tsunami reconstruction consists of building houses, roads, bridges ... the government is quite capable of doing that, even in (rebel) areas, if they are allowed in," he added.

Any amendments to the aid pact will need the consent of the Tigers, who say they have lost hope in the deal, and the Supreme Court -- which stopped short of declaring the agreement illegal -- is due to issue a definitive ruling on Sept. 12.

The rebels are more focused on a spate of attacks against their cadres in the east, warning on Sunday of an imminent return to their war for self-rule.

"The ceasefire agreement is at grave risk and the Sri Lankan government has the responsibility to salvage it," political wing head S.P. Thamilselvan told Norwegian mediators and Nordic truce monitors in the northern strongold of Kilinochchi on Wednesday.

The Tigers have asked foreign donors for direct aid.

"Well,there's no chance of that," said one senior foreign diplomat on condition of anonymity.

TSUNAMI AID FLOWING

The impasse is only compounding the woes of tens of thousands of tsunami survivors are having to live on food handouts in wooden shacks and rudimentary temporary shelters.

But aid is still reaching the rebel-held north.

"Work will continue as it has without the aid-sharing deal," said one United Nations official, asking not to be named. "The resources coming to Sri Lanka will not dry up."

"The greater concern of the donors is that things will fall apart so much that the work on the ground won't be able to be done," he added, referring to infrastructure projects along the island's shores, where the tsunami killed nearly 40,000 people.

The court ruling took President Chandrika Kumaratunga's government off-guard. The ruling coalition sacrificed its majority in parliament by pushing ahead with the pact despite a vow by its Marxist ally to quit over the issue.

The hardline People's Liberation Front (JVP) followed through on its threat, reducing the government to a hamstrung minority in parliament which is now struggling to govern.

"(The judgement) certainly came as a surprise to the President. She just got it wrong." said Dayan Jayatilleka, a senior politics lecturer at the University of Colombo. "She thought the JVP was bluffing."

Government insiders say the court ruling could help pave the way for a political reunion with the JVP, which would be vital to hopes of fending off any election challenge from the opposition United National Party (UNP) if Kumaratunga is forced to call a snap poll.

The minority government will need JVP's support to push through its 2006 budget, due in November, as political arch-foe the UNP is unlikely to back it. Elections will have to be called if the budget doesn't get through parliament.

But analysts say the damage has been done.

"The political chemistry rules out the JVP being brought back into the fold of the Alliance," said Kethesh Loganathan of the Centre for Policy Alternatives, a public policy institute. "I don't see that happening in the near future."