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Asia Crisis

Azerbaijan: Karabakh key to Turkish-Armenian peace

* Warns ready to fight to take rebel region back

* Karabakh behind collapse of Turkish-Armenian accords

BAKU/YEREVAN, April 23 (Reuters) - Azerbaijan warned Armenia on Friday it could not achieve anything in the region unless it makes peace over Nagorno-Karabakh, and warned its army was ready "to hit any target" to take the breakaway region back.

The comments follow the collapse on Thursday of a U.S. and Russian-backed bid to mend ties between Armenia and Turkey after a century of hostility stemming from the World War One mass killing of Armenians by Ottoman forces.

Armenia suspended ratification of a deal to establish diplomatic ties and reopen its border with Turkey after Ankara said Armenia should first reach terms with Azerbaijan over Nagorno-Karabakh, where ethnic Armenians threw off Azeri rule in the early 1990s with backing from Armenia.

Armenia says it is unacceptable to link the two issues.

But in Baku, Azeri President Ilham Aliyev said nothing would be possible without a solution to Nagorno-Karabakh, something that has evaded mediators since a ceasefire was agreed in 1994.

"You cannot achieve anything in the region without a solution to the Karabakh conflict," Aliyev said in a televised meeting of the government.

Azerbaijan, its military budget swollen by petrodollars, frequently threatens to take the mountain region back by force.

But the rhetoric became sharper after the thaw began between Turkey and Armenia late last year, and traditionally good ties with the United States have become strained by Washington's support for the rapprochement.

ISOLATED

"The fact that we continue peaceful negotiations is a major compromise on our part," Aliyev said.

Defence Minister Safar Abiyev told him: "The Azerbaijan army has all the capabilities to hit any target on the territory of Armenia if necessary."

To the vast majority of Armenians, the idea of giving up some of the land won during the Nagorno-Karabakh war in exchange for an open border and diplomatic ties with Turkey, is unacceptable.

But Turkey, which closed the border in 1993 in solidarity with Azerbaijan, has been stung by the backlash in Azerbaijan, an oil and gas exporter and one of the West's key hopes for gas for the planned Nabucco pipeline.

Though the deal is now on ice, some analysts warn it is too late to sooth tempers in Azerbaijan.

"It increases instability because the process has left Azerbaijan isolated and effectively pulled the rug from under its foreign policy framework, built on close ties with the U.S. and Turkey," said Svante Cornell of the Central Asia-Caucasus Institute.

The Armenian-Turkish peace process has also roused opposition within Armenia and the huge Armenian diaspora, many of whom trace their roots to the killings and deportations of World War One.

On Friday, the eve of the 95th anniversary of the massacres, thousands of Armenians with flaming torches marched through the capital Yerevan to demand Turkey recognise the events as genocide.

Turkey rejects the term genocide and says many Muslim Turks and Kurds, as well as Christian Armenians, were killed in inter-communal violence as Russian forces invaded eastern Anatolia during World War One. (Writing by Matt Robinson; Editing by Jon Hemming)

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