(recasts with U.S. ambassador's quotes)

By Anis Ahmed and Ruma Paul

DHAKA, Nov 7 (Reuters) - The U.S. ambassador to Bangladesh said on Friday he hoped the country's two biggest political parties would agree to take part in next month's parliamentary election.

Former Prime Minister Begum Khaleda Zia earlier left in doubt the participation of her Bangladesh Nationalist Party (BNP), saying the atmosphere was not conducive to a free and fair vote on Dec. 18.

Khaleda's arch rival, Awami League leader Sheikh Hasina, announced on Thursday she would contest the election.

After talks with Hasina at her home on Friday, U.S. ambassador James Moriarty told journalists: "I hope the election will be participated by both main parties and the results will be acceptable to all."

He said he hoped the vote would go ahead as scheduled on Dec. 18, adding: "We have just seen a peaceful democratic election in the U.S. and expect to see the same in Bangladesh."

Hasina, also a former prime minister, returned home on Thursday after undergoing medical treatment in the United States.

Political analysts say the participation of both parties is vital to ensure peaceful voting and a smooth return to democracy after nearly two years of rule by an army-backed interim government.

Addressing a huge BNP rally in the port of Chittagong, Khaleda said: "The government has failed to create a promised level playing field for all parties to contest the election, while the Election Commission seems favouring a certain group to clinch power."

"The BNP and its allies want to join the election for the welfare of the country, to ensure people's fundamental rights. But the stage is not ready for a fair and credible election," she said in her first public speech since being released from prison in September.

Syed Ashraful Islam, acting general secretary of the rival Awami League, said on Friday: "We hope BNP will eventually take part ... and the country will have an election participated by all major parties."

The interim authority took over in January 2007 after widespread political violence.

Khaleda and Hasina were both arrested last year for alleged corruption and were released after a year behind bars, although the charges against them have not been dropped.

The BNP and the Awami League, Bangladesh's biggest parties, alternately ruled the country for 15 years until October 2006. (Editing by Andrew Dobbie)

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