Iraq Kurds and government end standoff over northern town

BAGHDAD (Reuters) - The Iraqi government and minority Kurds resolved a dispute over control of an ethnically mixed town on Wednesday, Iraqi officials said, ending a standoff that had threatened to trigger violence.

Kurdish and Arab politicians ended the impasse by agreeing to withdraw both the Iraqi army and Kurdish Peshmerga security forces from the town of Khanaqin, home to Arabs and Kurds in northeastern Diyala province.

The Iraqi army had wanted to enter Khanaqin, which lies just outside the largely autonomous northern region of Kurdistan, to stamp government authority on the area. But Peshmerga forces patrolling the town had refused to withdraw.

It was unclear whether some Iraqi troops had already entered the town, or whether they were massed at its borders.

"It was agreed that the Iraqi army would withdraw...and the Peshmerga would withdraw to within Kurdistan. The Khanaqin police will control security and enforce the law in the town," said Ibrahim al-Bajilan, head of the Diyala provincial council.

The agreement was reached after negotiations between the Iraqi government's main Shi'ite and Kurdish parties. The Iraqi army or the Peshmerga would only enter Khanaqin if called upon by local authorities, Bajilan said.

Thousands of Kurds staged protests as the Iraqi army approached Khanaqin last month to try to replace the Peshmerga. Kurds are sensitive to moves they see as attempts to dilute their influence.

Haidar al-Ibadi, a senior member of Prime Minister Nuri al-Maliki's Dawa party, said the agreement did not specify whether police or the army would control the town, but that it was likely police would have responsibility and call on the army if required.

"There has been an agreement on the withdrawal of Peshmerga forces into Kurdistan and that Iraqi security forces would take responsibility for security," he said.

Diyala, with large populations of ethnic Kurds, Arabs and Turkmen divided into Sunni and Shi'ite religious groups, has remained a battleground for Sunni Islamist al Qaeda, which is seeking to stoke tensions as the rest of Iraq grows more stable.

(Writing by Mohammed Abbas: Editing by Angus MacSwan)