* Germany to pay parents who raise toddlers at home
* Some allies, opponents want more daycare instead
* Merkel makes deal with reluctant coalition partners
BERLIN, June 6 (Reuters) - German Chancellor Angela Merkel's cabinet approved a divisive bill on childcare payments on Wednesday, resolving a damaging row over the legislation among her coalition partners but setting up a confrontation with opponents in parliament.
The bill - which would give parents an allowance to keep their toddlers at home rather than sending them to nursery - has split a nation where the role of working mothers is still hotly debated.
Opposition parties, and some figures within Merkel's own coalition, have dismissed the legislation as a sop to traditionalists who see women's role as "Kinder, Kueche und Kirche" (children, kitchen and church), a 19th-century slogan.
They also say it contradicts the government's earlier focus on welfare payments for working mothers - part of a broader programme to boost Germany's low birthrate.
Merkel had agreed to a benefit for stay-at-home parents in the 2009 coalition deal that gave her a second term, at the urging of her largely Catholic, conservative partners in the Bavarian-based Christian Social Union (CSU).
It became a major bone of contention inside her coalition, with ministers and lawmakers from her own Christian Democrats (CDU) and their Free Democrat (FDP) partners openly opposing it.
After months of bickering about the social and budgetary impact, a last-minute deal with the FDP enabled the cabinet to agree a bill for parliament's approval before the summer recess.
Merkel's chief whip in the Bundestag, Daniel Grosse-Broemer, said on Tuesday the new allowance would "help Germany become more child-friendly".
But the opposition, in a rare show of unity between the allied Social Democrats (SPD), Greens and the hardline Left and maverick Pirates, appealed to unconvinced government MPs to veto the bill. They launched a petition saying: "Nobody wants the child care allowance - except the CSU".
The bill requires approval by parliament's lower house but the SPD - ramping up opposition to Merkel ahead of 2013 when she will seek a third term - wants a vote in the upper house, which can however only delay the bill, not throw it out.
Some opposition parties fear the bill will just tempt poorer families, including many immigrants, to keep their children at home instead of sending them to nurseries where they would learn German and integrate more easily into society.
Although career women who put their kids in daycare at an early age are disparagingly called "Raven Mothers" by some traditionalists, opinion polls suggest the German public does not like the idea of paying parents to keep their kids home.
In a poll for the German Workers' Welfare Association (AWO) 59 percent of respondents disapproved of the benefit. "Young people want modern family policies that enable them to balance family life and work," AWO head Wolfgang Stadler said, adding that the money should be spent building more nurseries.
Merkel's Family Minister Kristina Schroeder - who last year became the first cabinet member to give birth while serving as a minister - has in the past presented home-parenting as a question of free choice.
"More than half the parents in our country don't want to put their two- and three-year-olds into daycare," she said earlier this week. Such people would get 100 euros a month from January 2013, rising to 150 euros the following year for two- and three-year-olds. Only families already getting unemployment benefit would be excluded.
Christoph Matschie, SPD education minister in Thuringia state which already has such an allowance, said it had led to "children most in need of professional care staying at home".
Merkel, who has no children herself, introduced relatively generous child benefit payments in 2006 - during her first term, when she governed in coalition with the SPD - making it easier for women to return to the workplace after having children. (Reporting by Stephen Brown; Editing by Andrew Heavens)