Biden pressing Iraqi leaders to form government

* Praises Iraqis for negotiating

* New government will "sustain" country

* Obama to make major Iraq speech after vacation

WASHINGTON, Aug 23 (Reuters) - U.S. Vice President Joe Biden said on Monday he is pressing Iraq's leaders to settle their differences and form a government, almost six months after the country's election and a week before the scheduled end of the U.S. combat mission.

The Pentagon plans to cut troop numbers in Iraq to 50,000 by Sept. 1 -- from 176,000 at the peak of the deployment after the 2003 invasion to topple dictator Saddam Hussein -- and end its official combat mission there.

"More than 140,000 troops were in Iraq on inauguration day (Jan. 20, 2009)," Biden said in a speech to U.S. military veterans in Indiana. "By the end of August, 50,000 will remain."

Iraqi insurgents have been seeking to exploit a political vacuum created by the failure of the country's Sunni, Shi'ite and Kurdish factions to agree on a coalition government almost after an inconclusive March 7 parliamentary election seen as a crucial test for Iraq's young democracy.

Biden praised Iraq's leaders for sitting down to negotiate, but said he was pushing them to move.

"I personally ... have made it clear to the leading politicians it is time for them to match the courage of their citizens by completing this process," Biden said.

"It's difficult. They've never had a government like this before."

Amid fears a weak Iraqi government could not preclude a lapse back into dictatorship, Biden said he expected they would form a strong one.

"I am absolutely confident that Iraq will form a national unity government that will be able to sustain that country," Biden said.

U.S. troops will stay in Iraq in an "advise-train-assist" role until the end of 2011.

U.S. President Barack Obama, who campaigned for the White House on a pledge to end the Iraq war, plans to make a speech next week about the U.S. troop drawdown.

The speech will be given after his return from the Massachusetts island of Martha's Vineyard, where he is vacationing with his family.

Editing by Bill Trott