* Armenia, Turkey to sign deal on diplomatic ties, border
* Armenian, Azeri leaders meet 2 days before on Karabakh
* Failure on Karabakh could hurt Turkish-Armenian prospects
(Adds Turkish government official)
By Matt Robinson
MOSCOW, Oct 6 (Reuters) - Armenia and Turkey are due to sign historic accords ending a century of hostility on Saturday but a simmering territorial dispute could yet complicate their plans, diplomats said.
Christian Armenia and Muslim Turkey, at loggerheads since the World War One mass killings of Armenians by Ottoman Turks, plan to sign a protocol in Zurich committing them to re-establish diplomatic ties and reopen their common border.
An agreement would bolster Turkey’s credentials as a moderniser in the West, boost Armenia’s poverty-stricken economy and improve security in the South Caucasus region, a key transit corridor for oil and gas supplies to the West.
But hanging over the talks is the spectre of one of the bloodiest and most intractable conflicts sparked by the demise of the Soviet Union.
Armenia went to war with neighbouring Azerbaijan in the early 1990s over the mountainous territory of Nagorno-Karabakh, an ethnic Armenian enclave located within Azerbaijan’s internationally recognised borders. Some 30,000 people died.
The war ended with a 1994 ceasefire after Armenian-backed forces seized control of Nagorno-Karabakh and districts around it, including a corridor of Azeri land connecting it to Armenia.
The two sides have kept an uneasy ceasefire ever since, with spontaneous clashes along the border.
International mediators have been putting pressure on Armenia to negotiate with Azerbaijan over Karabakh as part of a wider attempt to secure a lasting peace in the region.
"There are intensified efforts ... to make sure that at some point, relatively soon, there will be something from the Karabakh process that could help the Turkish-Armenian process move forward," a senior European diplomat told Reuters.
Officially, the Azeri-Armenia talks on Karabakh are separate from the Turkey-Armenia rapprochement. In reality they are closely linked because Turkey has close cultural ties with Muslim Azerbaijan and closed its border with Armenia in 1993 in solidarity with Azerbaijan over the Karabakh war.
In the latest diplomatic round, two days before the Swiss ceremony, the leaders of Armenia and Azerbaijan will hold new talks on Karabakh in Moldova’s capital Chisinau on Thursday.
The U.S. co-chair of the Minsk Group of mediators on Nagorno-Karabakh, Robert Bradtke, told reporters in Baku he hoped that the "positive dynamics" between the Azeri and Armenian leaders would continue at that meeting.
But, speaking on condition of anonymity because of the sensitivity surrounding the talks, the European diplomat added that he did not expect any major announcement in Moldova, saying: "I think it’s going to take longer than that."
A Turkish government official in Ankara said:
"We are not a part nor a side in the Nagorno talks, but we would welcome any progress towards a comprehensive solution between Armenia and Azerbajian."
Turkey has said it hopes to open its border with Armenia by the end of the year, but progress in Ankara-Yerevan talks have been complicated in the past by the Nagorno-Karabakh dispute.
After its expected signing in Switzerland, the Turkish- Armenian peace protocol must be ratified by both parliaments before taking effect.
Progress in Karabakh talks could ease resistance to the Armenia peace process in Turkey, where lawmakers fret about making concessions to Armenia without any payback.
But it could complicate matters in Armenia -- where there is still deep suspicion about any rapprochement with Turkey and mistrust of Azerbaijan, which has not ruled out using military force to retake Nagorno-Karabakh if necessary.
Before Thursday’s talks with Armenian President Serzh Sarksyan, Azeri President Ilham Aliyev upped the stakes by saying "the negotiation process (on Karabakh) is already in its final phase."
Observers believe Azerbaijan is pushing for at least a partial Armenian withdrawal from seven Azeri districts that surround Nagorno-Karabakh and were captured during the war.
"Armenia...wants to separate Karabakh from Azerbaijan, while Azerbaijan intends to take back our own lands under our own control," Azeri Deputy Foreign Minister Araz Azimov said.
Armenian officials played down expectations. "To say that tomorrow there will be a breakthrough, I don’t know where this kind of expectation could come from," an Armenian foreign ministry spokesman said.
Armenian analyst Richard Giragosian said the mediators would push for a short statement by Aliyev and Sarksyan on Thursday committing to the principles of a peace deal on Karabakh as a sign of progress, "mainly for the Turks to use to move forward with the parliament (ratification)."
But he was pessimistic about their chances -- and failure at the Moldova talks is likely to hurt the Turkey-Armenia peace.
The senior European diplomat, asked about the chances of Turkey opening the border as planned by year-end, without progress on Nagorno-Karabakh, replied: "Fairly slim." (Additional reporting by Hasmik Mkrtchyan in Yerevan and Afet Mehtiyeva in Baku; editing by Michael Stott and Mark Trevelyan)