(Adds parliament rescheduling vote for Wednesday)
By Waleed Ibrahim
BAGHDAD, Aug 5 Iraqi lawmakers postponed a vote on Tuesday on a law to allow provincial elections, the second time in three days that they failed to resolve a standoff over the oil-rich city of Kirkuk which has stoked ethnic tension.
Iraq's minority Kurds welcomed a new U.N.-backed plan, unveiled in negotiations overnight, to resolve the deadlock over the election law by setting aside decisions on the fate of Kirkuk, a city Kurds regard as their ancestral capital.
The U.N. plan, seen by Reuters, would authorise elections to go ahead across the rest of the country but leave the future of Kirkuk for a separate law to be passed at a later date.
Kurds want to fold Kirkuk into their semi-autonomous northern region, a plan opposed by the city's Arab and Turkmen residents and all of the major non-Kurdish parties in Iraq.
"It is for the benefit of all Iraq's people to hold the elections as soon as possible," Fouad Masoum, head of a Kurdish bloc in parliament, said after lawmakers failed to find enough consensus to hold a vote scheduled for Tuesday.
They rescheduled the session for Wednesday. An earlier session on Sunday was also scuppered when parties failed to reach agreement.
The provincial elections were originally scheduled for Oct. 1 and Washington is applying pressure on Iraqi leaders to resolve their differences quickly and avoid a long delay in a vote it regards as an important test of Iraq's democracy.
President Jalal Talabani, a Kurd, vetoed a version of the election law last month. Kurds opposed it because it set ethnic quotas for Kirkuk's provincial council and would have replaced Kurdish troops there with forces from other parts of Iraq.
The U.N. proposal to defer the Kirkuk issue has won backing among some non-Kurdish groups pushing for compromise.
"Our request to our brothers is to join us, to accept this proposal and hold the elections this year," said Khalid al-Attiya, deputy speaker of parliament and a member of Iraq's largest Shi'ite bloc.
But others remain opposed.
"This is a red line," said Fawzi Akram, a Turkmen loyal to Shi'ite cleric Moqtada al-Sadr, who objected to postponing the vote in Kirkuk.
The Kirkuk controversy has hurt efforts to reconcile rival political groups. A suicide bomber attacked Kurds protesting in the city last week, killing more than 20 people.
Parliamentarians say that if they fail to reach a deal in the next few days, the law could be postponed until after a summer recess, pushing the elections well into 2009.
Washington has pushed hard for a deal, with U.S. President George W. Bush phoning political leaders in recent days. The United States believes holding the elections is an important step to strengthen Iraq's democracy and give a voice to groups who refused to participate in the past.
Iraq has become far quieter over the past year, with violence falling to levels unseen since early 2004. (Reporting by Waleed Ibrahim; Writing by Peter Graff; Editing by Dominic Evans)