By Ross Colvin

BAGHDAD, Aug 4 (Reuters) - A planned summit of Iraq's political leaders will be "the moment of truth" for chances of a powersharing deal between Iraq's bitterly divided sects, a Western diplomat said on Saturday.

The pullout of the main Sunni bloc this week left Iraq's government a national unity coalition in name only at a time when it is under pressure from Washington to pass key laws and reach agreement on sharing power.

"This is the moment of truth for how they may handle this problem," the diplomat, speaking on condition of anonymity, told journalists at a briefing in Baghdad's Green Zone, which is home to the government and the U.S. and British embassies.

"This is not just a tiff. It is a very, very serious situation," he said.

The planned summit, a date for which has not yet been announced, will bring together President Jalal Talabani, a Kurd, Shi'ite Prime Minister Nuri al-Maliki, Sunni Vice President Tareq al-Hashemi, Shi'ite Vice President Adel Abdul Mahdi and maybe Masoud Barzani, president of Iraq's Kurdistan region.

The diplomat described the summit as "very, very important" and said Iraqi officials were working hard on an agenda that could effectively agree a powersharing deal and pave the way for swift passage of the laws through parliament.

The infighting has paralysed the government, with no agreement on laws to distribute oil revenues fairly, allow former members of Saddam Hussein's Baath party back into the civil service and set a date for provincial elections.

CRUCIAL LAWS

Iraq's parliament went on recess this week for August after delaying its summer break to deal with the laws, which Washington views as crucial to reconciling Sunnis and Shi'ites and easing raging sectarian violence.

"In the next few days, if this leadership council does adopt the agenda, I can see the Council of Representatives coming back in September and moving very quickly on the legislation, because a deal will have been struck," the diplomat said.

Despite Maliki's inability to work ministers from the Sunni Accordance Front and his failure to deliver on any of the key legislation sought by Washington, the United States still sees the Shi'ite Islamist as the best man for the job.

Washington did not believe "there is somebody who can do it better", the diplomat said, while acknowledging that Maliki's 15-month-old government had not performed well.

"These are tough issues. Whoever is there is going to deal with the same agenda. Now is not the time for a change in government," he said, noting reports that some members within Maliki's own party, including former Prime Minister Ibrahim al-Jaafari, were seeking to unseat him.

U.S. President George W. Bush can ill-afford a change in government now, with Democrats in Congress pressing for a troop pullout in the absence of any demonstrable political progress in Iraq. Maliki's government took more than four months to form.

AlertNet news is provided by