* Risk of violence rising in Georgia
* Political deadlock between president and opposition
(Updates with talks, paragraph 9)
By Matt Robinson
TBILISI, May 11 (Reuters) - The risk of violence is rising in Georgia after a month of political deadlock between a president determined to cling to power and an opposition which lacks the numbers and unity to unseat him.
President Mikheil Saakashvili, re-elected in January 2008, has so far resisted demands to quit over his record on democracy and last year’s disastrous war with Russia.
The United States and Russia, each for its own strategic reasons, are watching out for instability in the potentially volatile region. Georgia is a major conduit for the transit of Caspian gas and oil to Western markets.
Violence has already flared once at an evening protest in Tbilisi and analysts say Saakashvili must address opposition grievances if the political stalemate is to end peacefully, without mass unrest or a heavy police crackdown.
"The dilemma of this situation is that, on the one hand it is a continued and serious challenge that cannot be ignored," said Svante Cornell, research director at the Central Asia-Caucasus Institute.
"But on the other hand, it’s not a challenge of the magnitude that would risk unseating the government, and therefore you have deadlock."
A brief, bloodless mutiny at a tank base last week also cast doubt over the loyalty of the military.
Georgia’s army was humiliated last August when it tried to reconquer the breakaway region of South Ossetia, prompting a massive Russian counter-attack which crushed it in five days.
Talks between Saakashvili and four opposition leaders on Monday ended without result. Saakashvili offered joint reforms, his opponents demanded he resign. The president cautioned he would "not allow anyone to shake our statehood", block roads, or infringe the rights of others for political gain.
Georgia was racked by civil war in the 1990s when opposition forces formed militias to overthrow President Zviad Gamsakhurdia. They accused him of suppressing all dissent after leading the country to independence from the Soviet Union.
Fighting raged for weeks in the centre of Tbilisi and spread through the country after Gamsakhurdia broke out of his parliament building and fled the capital with supporters.
Current protests are testing the patience of the police, who dispersed mass demonstrations against Saakashvili in 2007 with rubber bullets, beatings and tear gas and closed an opposition television station at gunpoint, angering Georgia’s Western backers.
Saakashvili is wary of a repeat, particularly with NATO conducting month-long military exercises at an air base 25 km (15 miles) from the capital — "a clear signal of support to the ruling regime," Russian Prime Minister Vladimir Putin said on Sunday.
Neighbouring big power Russia has long loathed Saakashvili and is hoping that the opposition movement will finally unseat him. The Georgian government constantly charges Moscow-backed plots against Saakashvili but Russia denies any involvement.
Tbilisi has drawn comfort from the NATO exercises going ahead and from Western diplomats publicly criticising opposition protesters for clashes at a Tbilisi police base on Wednesday, the only violent flare-up since the opposition campaign began.
Police have on the whole assumed a low profile and are said to be strongly loyal to Saakashvili.
But it is not clear how long the government will tolerate paralysis in Tbilisi, or the threat that the opposition will expand roadblocks to the country’s main east-west highway.
Observers point to Independence Day on May 26 as a key date, when the military parades down Rustaveli Avenue. The avenue is blocked by dozens of mock prison cells erected by protesters.
"The risk of continued violence and that this would degenerate into another type of ... violence is constantly present," said Cornell.
Political analysts say the government is looking to exploit a rift between moderate and hardline factions over how to respond to the offer from the authorities of dialogue on democratic reforms, rather than Saakashvili’s resignation.
"This is what’s going to test them and reveal to what extent they are a cohesive force or ... really a bunch of myriad actors hanging around together only because they would like to be in power after the president goes," said Lawrence Sheets, of the Brussels-based International Crisis Group think-tank.
The more moderate faction has signalled it is ready to discuss the government proposals. Others have refused.
The opposition accuses Saakashvili of monopolising power, compromising judicial independence, rigging elections and stifling the media since coming to power on the back of the 2003 "Rose Revolution" on a promise to consolidate democracy.
Diplomats say he is under pressure from the West to make concessions. Some $4.5 billion in aid was pledged after the war, some of which is being used to plug holes in the budget left by investors who fled after the war.
A battalion commander’s refusal to obey orders at a tank base near Tbilisi, and the arrest of several serving and former military officials on suspicion of plotting a wider rebellion, is another reason for Saakashvili to be concerned.
Military experts in Tbilisi suggest the mutiny may have been linked to government plans to prevent the opposition from blocking the main entrances to Tbilisi. The opposition announced its plans on Monday, the day before the base rebelled.
The opposition has since put that plan on hold, for now.
"If the situation goes to a stage where the opposition tries to block the main highway in and out of Tbilisi then I think we may see a different scenario," said Sheets. "We might see a more robust response from the government." (Editing by Michael Stott)