(Adds analyst's comments)

By Gopal Sharma

KATHMANDU, Aug 22 (Reuters) - Nepal's Maoist Prime Minister Prachanda on Friday named a coalition cabinet, including former guerrilla commander Ram Bahadur Thapa as defence minister in charge of the army that once battled Maoist rebels.

Thapa is seen as a hardliner among the Maoists and was the commander of the guerrillas who waged war against the monarchy in the Himalayan foothills from 1996. More than 13,000 people were killed in the decade-long conflict.

The Maoists have confined 19,000 fighters to U.N.-supervised camps. A ministerial panel is to decide their fate, seen as crucial to lasting peace.

A presidential palace statement said Prachanda also named his deputy Baburam Bhattarai, a Maoist ideologue, as finance minister responsible for economic development in one of the world's poorest countries.

Analysts said that since the Maoists did not have an absolute majority in the special assembly they had to concede key ministries like home and foreign to coalition partners.

"The Maoist party has received only a limited and not a full mandate," said Lok Raj Baral, chief of the Nepal Centre for Strategic Studies, a private think-tank.

"On the basis of that mandate it has been able to form the government. But it has to work with coalition partners and cannot go on its own," he said.

Prachanda picked Upendra Yadav, chief of the Madheshi People's Rights Forum, a key ally, as foreign minister, a move seen as intended to appease the Madheshi community dominating the country's troubled southern plains bordering India.

PROTESTS

At least 50 people have been killed in protests demanding autonomy in the Madheshi region since the Maoists announced a ceasefire in 2006.

Another potential coalition partner, the Communist UML party, which was expected to take the key home ministry, said six of its members scheduled to be sworn in on Friday would not join the government until a row with the Maoists over cabinet posts was resolved.

The Maoists said four other smaller parties would join the coalition in future.

The Maoists emerged as the single biggest party in constituent assembly elections in April.

They must now try to bridge ethnic and social divides, address the grievances of war victims' families and quickly tackle chronic fuel and food shortages, diplomats said.

The assembly, meant to write a new constitution and act as an interim parliament, elected Prachanda, 53, with an overwhelming majority last week, ending months of political deadlock after April's election produced a split parliament.

"It is quite clear that the peace process has to be taken to a logical conclusion and it will be my priority to prepare a new constitution," Prachanda said earlier this week.

The new constitution is expected to be written in two years and will be a final step in a peace process that has already seen Nepal, tucked between Asian giants China and India, abolish the 239-year-old monarchy and become a republic. (Editing by Krittivas Mukherjee and Andrew Roche) (For the latest Reuters news on Nepal see: http://in.reuters.com, for blogs see http://blogs.reuters.com/in)

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