Arab relief at Allawi win with hopes for a secular Iraq

DUBAI (Reuters) - Iraq's Arab neighbors will breathe a sigh of relief after secularist challenger Iyad Allawi eked out the most seats in Iraq's election, hoping he will lend a pro-Arab and cross-sectarian tint to any coalition government.

But the tight race, foreshadowing divisive talks to form a new government, leaves Arabs uneasy that minority Sunnis could still end up marginalized if a potential merger between two Shi'ite blocs sidelines Allawi and keeps Iran's sway strong.

"These results are very encouraging," said Khaled al-Dakhil, Saudi politics lecturer at King Saud University.

"It seems to have brought about a restoration of balance within the Iraqi political scene. But the concern that Iraq turns into a new Lebanon is still there as many parties remain heavily supported by regional powers," he added.

Allawi's secular, cross-sectarian Iraqiya bloc won by a two-seat margin in preliminary results released on Friday over a coalition led by Shi'ite Prime Minister Nuri al-Maliki.

A secular Shi'ite former prime minister once highly critical of Shi'ite neighbor Iran for meddling in Iraq, Allawi said he would extend "hands and heart" to all groups.

"We are seeing a more and more secular rather than sectarian Iraq," United Arab Emirates-based analyst Abdul Khaleq Abdullah said. He added the results showed a waning Iranian influence although Tehran remained a "formidable force" in the country.

"I think sectarianism breeds violence, tension, instability," he said. "An unstable Iraq is a big headache for the GCC (Gulf Cooperation Council) and the rest of the Arab world. The more stable Iraq is, the better off we are."

Sunni-led Arab countries, particularly in the Gulf where there are significant and marginalized Shi'ite minorities, worry about the repercussions of Iranian influence in Iraq.

They fear the Shi'ite majority is trying to deprive Iraq's once dominant Sunnis of their fair share of power.

COALITION BUILDING

Arab states worry that meddling by non-Arab Iran in Iraq, an Arab country with a Shi'ite Muslim majority, could incite their own Shi'ite populations and that sectarian instability in Iraq could spill over.

Allawi's strong support among minority Sunnis in the vote has also exacerbated concerns among some Arabs that any attempt by more sectarian-oriented Shi'ite blocs to push him aside could reignite tensions.

"Allawi is a bit more Arab-inclined and he won despite Iran's intervention," said Nader al-Mutairi, 36, a lawyer in Kuwait. "But Allawi will not be able to form a government because nobody will form an alliance with him."

"I wish them peace, no violence or terror and I hope they stay away from sectarianism," he said.

Maliki said on Friday he would not accept the election results and was on the way to forming the biggest bloc in parliament despite finishing behind Allawi, viewed as having better relations with Arab states.

Officials with Maliki's coalition and from the third-place finisher, the Iraqi National Alliance, a bloc with close relationships with Iran, have said they are working toward a merger. The two combined would hold 159 seats, close to the majority needed to form a government.

Such an alliance could leave Sunnis vulnerable after they turned out in force at the polls. Their participation was considered a key to Iraq's future stability after the sectarian bloodshed that engulfed the country in 2006 and 2007.

"What is best now is extensive negotiations for forming a national unity government," said Ayed al-Mannah, a Kuwait-based political analyst, adding he feared the results meant a "hung parliament and a hung government."

Others voiced concerns about instability as haggling for power begins.

"I think we will see another new wave of violence in Iraq because of that," said Sulayman Awad Ibrahim of the United Arab Emirates-based Gulf Research Center.

(Additional reporting by Diana Elias in Kuwait, Souhail Karam in Riyadh and Marwa Awad in Cairo; Writing by Cynthia Johnston; Editing by Mark Trevelyan)