UPDATE 4-Lebanon forms government after 10-month deadlock
* PM Salam aims to hold presidential polls on time
* Asks politicians to make concessions for nation's sake
* Political, sectarian divisions fuelled by Syria spillover
* Struggle over energy post delayed government for weeks
By Laila Bassam and Erika Solomon
BEIRUT, Feb 15 (Reuters) - Lebanon announced a new government on Saturday, breaking a 10-month political deadlock during which spillover violence from neighbouring Syria worsened internal instability.
A caretaker government has run the country since former Prime Minister Najib Mikati resigned in March as parties aligned with the Shi'ite Hezbollah movement and a Sunni-led rival bloc pursued a power struggle exacerbated by their support for opposing sides in Syria's almost three-year-old civil war.
"A government in the national interest was formed in a spirit of inclusivity," new Prime Minister Tammam Salam declared on live television.
He said he hoped the new government would allow Lebanon to hold presidential elections before President Michel Suleiman's mandate expires in May and finally conduct parliamentary polls that were postponed last year due to the political impasse.
"I extend my hand to all the leaders and I am relying on their wisdom to reach these goals and I call on all of them together to make concessions in the interest of our national project," he said.
Parliament designated the Sunni lawmaker as prime minister in April 2013, but he had been unable to form a cabinet for months due to rivalries between the Hezbollah-dominated March 8 bloc and the March 14 alliance, led by the Sunni Future Party.
Former Energy Minister Gebran Bassil, from the March 8 bloc, becomes foreign minister. Former Health Minister Ali Hassan Khalil, also from March 8, takes the finance portfolio. Nouhad Machnouk, a March 14 legislator, was named interior minister.
Salam said his "national interest government" had a mandate to fight mounting security problems, which he linked to Syria.
"We must also deal with our complicated economic and social issues, the most important of which is the growing number of refugees from our Syrian brothers and the burdens this has placed on Lebanon," he said.
Sectarian violence has erupted sporadically in the past year, particularly in the north, and car bombings targeting both security and political targets have increased dramatically, with Hezbollah-dominated areas being the most frequent target.
"We want this new government to open the doors for a complete settlement and to get the country back on the train to stability," Finance Minister Khalil told Reuters by telephone.
U.S. Secretary of State John Kerry welcomed the formation of the government as "an important first step" towards addressing Lebanon's recent political uncertainty.
"Amidst growing terrorism and sectarian violence, we look to the new cabinet, if approved by parliament, to address Lebanon's urgent security, political and economic needs," Kerry added.
ENERGY WAS STUMBLING BLOCK
Salam had tried again to form a government last month, but was thwarted by a row over who would hold the energy portfolio, a ministry given extra weight by the discovery of potential gas and oil reserves off Lebanon's Mediterranean coast.
The Christian Free Patriotic Movement (FPM), a Hezbollah ally, had insisted former Energy Minister Bassil keep his post. The dispute was finally resolved with the appointment of Arthur Nazarian, from the FPM-aligned Tashnag, a small Armenian party.
"The top priority of this government will be stability and security, and also to improve people's daily life, and I think one of the essential things that is important to all Lebanese is the petroleum issue," Bassil told a news conference.
Salam had earlier made a deal with political parties that requires all cabinet roles to be rotated among different religious groups in each new government, so that no sect can indefinitely dominate a particular ministry.
Lebanon, still struggling to recover from its own 1975-1990 civil war, has found its internal rifts aggravated by the conflict in Syria, whose sectarian divisions mirror its own.
Hezbollah, a militant and political movement supported by Shi'ite Iran, is one of the most powerful groups in Lebanon and fought an inconclusive war with Israel in 2006. It has sent fighters to Syria to support President Bashar al-Assad, whose minority Alawite sect is a Shi'ite offshoot.
The Future party supports the anti-Assad uprising led largely by the Syria's Sunni majority.
Syria's war has stoked a region-wide struggle for influence involving Saudi Arabia and other Sunni-ruled states against Iran and its Shi'ite allies in Lebanon and Iraq.
The Lebanese cabinet deal could signal that those powers want to stem the sectarian violence convulsing Syria and rippling across Lebanon, Iraq and other countries.
In a televised speech on Friday, Future party head Saad Hariri, a former prime minister who threw his weight behind a unity government with March 8 last month, vowed to tackle sectarian radicalism within his own Sunni sect.
He also called on Hezbollah to pull its forces out Syria to prevent a "sectarian holocaust" in Lebanon.