(For a TAKE A LOOK on Honduras, click [ID:nN28343997])
* U.S says suspended $16.5 mln in military aid to Honduras
* Ousted president wants coup leaders to give up power
* Rivals seem far apart ahead of talks
* Arias has tough job as mediator (Updates with U.S. suspending military aid, details)
By John McPhaul
SAN JOSE, Costa Rica, July 8 (Reuters) - The United States said on Wednesday it had suspended $16.5 million in military aid to Honduras following last month’s coup, and ousted President Manuel Zelaya demanded his rivals hand power back to him in 24 hours.
The announcements came on the eve of talks scheduled for Thursday in the Costa Rican capital, San Jose, where Zelaya was due to meet leaders of the coup that toppled him on June 28.
Costa Rican President and Nobel Peace Prize winner Oscar Arias was due to mediate the attempt at a dialogue to solve the Honduran political crisis, which has stoked tensions in Central America.
Arriving in Costa Rica on Wednesday, Zelaya repeated his position he would only discuss his return to office in the poor Central American country.
"My presence here is not a negotiation," Zelaya, wearing his trademark white cowboy hat, told reporters. He noted that the world had widely condemned his ouster, which installed Roberto Micheletti as a caretaker president. Micheletti was appointed by the Honduran Congress after the coup.
The U.S. Embassy in Tegucigalpa said Washington suspended $16.5 million in military assistance programs to Honduras following the coup, in a move that appeared aimed at putting pressure on Micheletti’s interim government.
It added that a further $180 million in U.S. aid for Honduras could also be at risk, but said humanitarian assistance to the Honduran people such as food aid, AIDS prevention and help for children, would continue.
"There’s not a lot of risk to cutting military aid. ... It might give Arias a little bit of play for tomorrow," said Christine Wade, a Central America specialist at Washington College in Maryland.
Zelaya, who insists only his immediate return to office can restore order in his coffee- and textile-exporting nation, called Micheletti a "coup-mongerer" and said he expected his rivals to announce they were surrendering power within a day.
He said doing so would be "the most honorable thing for democracy in Latin America."
Late on Wednesday, a spokesman for Micheletti accused authorities in Nicaragua, a leftist ally of Zelaya, of refusing permission for Micheletti’s plane to fly over Nicaraguan territory on the way to Costa Rica. A senior military official in Managua denied the accusation as "totally false."
Both the United States, facing a major test of President Barack Obama’s promise to improve U.S. ties with Latin America, and the Organization of American States are backing Arias’ mediation.
QUICK SOLUTION NOT LIKELY
Venezuela, whose firebrand leftist president, Hugo Chavez, is an ally of Zelaya, said it was halting oil supplies to Honduras until the toppled president was reinstated.
Micheletti, a former Zelaya ally, has said he will not negotiate the ousted president’s return to power, insisting his removal was a defense of the constitution and that Zelaya was acting illegally by trying to remove presidential term limits.
"This isn’t a situation that can be resolved in a blink of an eye," Carlos Lopez, designated by Micheletti as envoy to the United Nations, said in Tegucigalpa. He repeated the coup leaders’ assertion that Zelaya would face charges if he returned.
Obama’s administration has supported Zelaya despite expressing misgivings about his policies and political allegiances. But it faced criticism at home from some Republican senators who questioned what they called "one-sided support" for Zelaya.
The United States appears to have persuaded Zelaya to give the talks a chance and refrain from trying to return to power by force. He tried to fly home on Sunday, but authorities in Honduras stopped his plane from landing while his supporters clashed with troops.
At least one person was killed on Sunday in the unrest, and U.S.-based Human Rights Watch said it had evidence suggesting the soldiers may have opened fire on unarmed demonstrators.
The OAS on Saturday suspended Honduras after the caretaker government refused to reinstate Zelaya.
The Honduran coup has stirred tensions in Central America, where Arias won a Nobel Peace Prize in 1987 for helping to end a series of civil wars and insurgencies tied to the Cold War.
Zelaya’s opponents say the logging magnate, who took office in 2006 and was due to leave power in 2010, had increasingly allied himself with Chavez and that his presidential term limit effort was influenced by the Venezuelan, a fierce U.S. critic.
Some analysts expressed skepticism about the talks. "It is difficult to see how this mediation will succeed so long as the coup government knows that they can stall out the rest of Zelaya’s term," said Mark Weisbrot, co-director of the U.S.-based Center for Economic and Policy Research think tank.
Seventeen Republicans in the U.S. Senate, which is controlled by Obama’s Democratic Party, sent a letter to Secretary of State Hillary Clinton asking the administration to reassess its position on the coup and urging it not to cut assistance to Honduras. (Additional reporting by Enrique Andres Pretel and Daniel Trotta in Tegucigalpa, Frank Jack Daniel in Caracas and Antonio de la Jara in Santiago de Chile, Susan Cornwell in Washington; Writing by Pascal Fletcher; Editing by Peter Cooney)