TEGUCIGALPA - A tentative plan to end Honduras' political crisis hung in the balance on Thursday as negotiators met again on whether President Manuel Zelaya, toppled in a June coup, should be returned to power.

Zelaya was forced into exile by soldiers on June 28 but he crept back into Honduras last month and took refuge in the Brazilian embassy in the capital to avoid arrest.

The coup caused Central America's worst political debacle in years. It has also become a test for U.S. President Barack Obama after he promised better relations with Latin America.

Zelaya's lead negotiator Victor Meza said on Wednesday the two sides agreed on the wording of a settlement including the issue of the leftist's future, but the proposal appeared not to get the approval of the country's de facto leader Roberto Micheletti, even as the army chief said a deal was close.

Obama has called for Zelaya's return, cut some aid to Honduras and may not recognize elections on November 29 if democracy is not restored. But he is increasingly criticized by U.S. Republicans for sticking up for Zelaya and so far has failed to pressure Micheletti into backing down.

Envoys for both camps met on Thursday morning but Zelaya's team left quickly to consult with him in the embassy, according to a Reuters witness. Talks are to restart in the afternoon.

Zelaya supporters worry the talks have stalled and believe Micheletti wants to keep hold of power until the elections.

No agreement the dialogue reaches will be valid if the coup-leaders do not accept the immediate restitution of Manuel Zelaya, protest leader Israel Salinas read from a statement.

A couple of hundred demonstrators gathered near the hotel where the talks were held calling for Zelaya's return.

WE'RE CLOSE

After months of unruly protests, media crackdowns and aggressive policing, representatives of Zelaya and Micheletti sat down to try to thrash out a solution last week.

A wealthy rancher who moved to the left after taking office, Zelaya angered conservatives by building close ties to Venezuela's President Hugo Chavez and toying with a reform of the constitution to change term limits for presidents.

The United States and other foreign governments say if democracy is not restored and curbs on the media and civil liberties remain, they may not recognize presidential elections scheduled for Nov 29.

U.S. State Department spokesman Robert Wood called on both sides to keep talking. What we're trying to do right now, from the U.S. side, is to encourage them to continue, because, as I said, we're close, and we want to see this deal happen.

Dick Lugar, the top Republican on the U.S. Senate foreign relations committee, boosted Micheletti's drive to have the elections recognized by supporting a call for the Organization of American States to send observers for the vote.

I strongly encourage the Organization of American States (OAS) to heed the October 8 written request by Honduran presidential candidates for oversight by international observers of the November 29 presidential election, he said in a statement on Thursday.
He also called for Micheletti to end curbs on media and protests.

(Additional reporting by Magdalena Morales and Gustavo Palencia in Tegucigalpa and Susan Cornwell in Washington; Editing by Cynthia Osterman)

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