* Dispute over Kirkuk has festered since Saddam era
* Kurds likely to be kingmakers after March 7 vote
KIRKUK, Iraq, Jan 26 (Reuters) - Iraqi Kurd Kamal Aga's face lights up when he recalls his childhood on a farm in Daquq, south of Kirkuk, where wheat and cotton fields stretched to the horizon and farmers of different ethnicities lived side by side.
That chapter of his life ended in his 20s when the lands of his prominent tribal family were seized in the 1970s, first in agrarian reform and then in the Baath party's push to move fellow Arabs into areas home to Kurds and other minorities.
Today, Aga lives in the disputed city of Kirkuk, working in a dingy office where he heads a commission seeking to settle some of the approximately 41,000 property claims like his own.
Only 7 percent of the claims have been resolved since the 2003 invasion, reflecting the challenges Iraq faces as it heads toward a March election which could help ease Kurd-Arab tensions over areas like Kirkuk or thrust Iraq back into open war.
The dispute over Kirkuk and other areas, which pits Iraq's Arab-led government against the largely autonomous Kurdish region in the north, has festered since Saddam's ouster in 2003.
It is now seen as the chief threat to Iraq's fragile security as U.S. forces prepare to end combat operations in August ahead of a full withdrawal by the end of 2011.
Kurds, who want to fold the region U.S. officials say may contain 3-4 percent of world oil reserves into their enclave, are likely to end up as kingmakers after the March 7 vote.
They may extract concessions for helping other factions form the next government, a prospect that frightens Kirkuk's Turkmen and Arabs, who say Kurds have treated them unfairly in their effort since 2003 to reverse Saddam Hussein's "Arabization".
Many Kirkukis say tensions stem from national politics and not from the realities on the ground.
"This is a feud among political powers treating Kirkuk like a cow that gives milk," said Waleed Saman, an Arab businessman.
"My brothers and I should be the decision makers. Close the door and give us 24 hours, and we'll come out with a solution."
Yet changes forced on the city since 2003 do not promise a future in which Arabs and Kurds will mix easily.
The Kirkuk Central School, a well-regarded boys school where Iraqi President Jalal Talabani, a Kurd, studied more than 50 years ago, is one example of the city's historic diversity.
All students at the school study Arabic and Kurdish, and can pursue other languages if they choose.
"We don't raise students to discriminate. We teach them to be brothers," said school official Mahmoud Majdab al-Rafaii.
But in Kirkuk's segregated neighbourhoods where more recent arrivals live, schools teaching at least partially in minority languages like Kurdish or Turkman have taken root since 2003.
Some 460 schools, of a total of about 1,390 across the province, are funded by the government of northern Kurdistan, using its curriculum and books and teaching entirely in Kurdish.
The aim was to give minorities a chance to study in their own language. Yet the schools are producing future generations unable to communicate fluently with their Arab countrymen -- and Kurds brought up to believe disputed areas are theirs by right.
Kurdish textbooks identify Kirkuk as "the most rich oil-producing area in Kurdistan. Most residents are Kurds but Arabs, Turkmen, Assyrians and Chaldeans also live there" -- a controversial claim in an area whose ethnic feuds have held up a national census and where no reliable demographic figures exist.
Fawzia Abdullah Awanees, a top education official, supports the language experiment but warns it could widen social gaps.
"We need integrated schools, which offer different languages, so people can live alongside one another," she said.
At the Kirkuk Property Disputes Commission, the process of sifting through thousands of complex, multigenerational and often overlapping property claims proceeds at a glacial pace.
Beyond the 41,000 claims the board is working through dating from 1968-2003, many more have sprung up after 2003, when Iraqis fleeing violence became squatters and Arabs brought into Kirkuk under Saddam fled in fear of Kurdish retaliation.
U.N. officials are trying to facilitate settlement as a step in building consensus needed to reach a solution on Kirkuk.
This week, parliament approved changes to expedite the slow claims process. Until the reforms take effect, Aga's hopes of reclaiming at least part of the family lands, occupied by Kurdish squatters after Arab families fled in 2003, are on hold.
"We still don't have one metre of land there," he said. (Additional reporting in Kirkuk by Mustafa Mahmoud and in Arbil by Shamal Aqrawi; Editing by Michael Christie and Charles Dick)
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