(Adds Ian Paisley quote paragraph 12)

By Paul Hoskins

BELFAST, March 7 (Reuters) - Northern Ireland voted on Wednesday in an election that could allow the return of a government shared between Protestants and Catholics and help cement a lasting political settlement after decades of conflict.

Britain and Ireland hope the assembly election will lead to a power-sharing agreement by March 26 and have threatened to impose indefinite direct rule from London with more input from Dublin if there is no deal by the deadline.

A 1998 peace deal ended 30 years of conflict in which 3,600 people were killed, but there is still no agreement on how the province should be run between Protestants who want to maintain union with Britain and Catholics seeking a united Ireland.

The last 108-member assembly did not even sit for a whole day after it was elected in 2003.

"We have to get the assembly back and get the whole thing moving again," said retired teacher Eamon O'Neill, voting in the mainly Catholic Falls Road area.

On the largely Protestant Shankill Road, pensioner Sarah Robinson said everyone wanted the conflict over and done with. "We need our own government to work for us, that's what everybody wants," she said.

British Prime Minister Tony Blair wants agreement in Northern Ireland before he steps down this year. A deal would also suit Irish Prime Minister Bertie Ahern who plans to call a parliamentary election this year.

The two leaders have worked together on a political solution for Northern Ireland for almost a decade.

BITTER FOES

The parties expected to do best are the largest Protestant group, the Democratic Unionist Party (DUP) of firebrand preacher Ian Paisley, and Sinn Fein, political wing of the Irish Republican Army (IRA).

Though bitter foes, they have shown signs of readiness to form a government. The previous power-sharing arrangement, between the more moderate parties in the communities, fell apart five years ago and London resumed direct rule.

"This is a time of tremendous opportunity for people on this island," said Sinn Fein leader Gerry Adams as he cast his vote. "This is a hugely important election and will decide the direction of politics here in the years to come."

Paisley told reporters: "We have a beautiful day and the sun is shining on the righteous and the unrighteous."

Parties urged early voting amid worries that turnout could be low given repeated false starts in the political process. After a trickle of voters during the day, the pace picked up as people left work.

The share of the vote is not expected to change much from British parliamentary elections in 2005 when the DUP scored 34 percent with Sinn Fein second on 24 percent, but the DUP will want a strong mandate before entering any talks with Sinn Fein.

Both parties face dissidents within their own constituencies who accuse them of betraying their principles.

Despite IRA disarmament in 2005, Paisley's harder-line rivals say that by leaving the door open to power-sharing he has broken a long-time pledge never to "share power with terrorists".

Sinn Fein faces challenges by several former supporters, who say the party was wrong to vote recently to support police and courts dominated by the Protestant majority in Northern Ireland.

Polling stations opened at 7 a.m. (0700 GMT) and will close at 10 p.m., but counting will not start until Thursday. (Additional reporting by Anne Cadwallader)

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