* Preliminary deal signed

* Talks will discuss unity government, end of violence

* South African President Mbeki says process is urgent

* Tsvangirai says solution must be found

* U.N. Secretary-General welcomes deal

By Cris Chinaka

HARARE, July 21 (Reuters) - Zimbabwe's President Robert Mugabe and opposition leader Morgan Tsvangirai on Monday signed a deal laying down the framework for formal talks on forming a power sharing government to end a deep political crisis.

It was the first meeting in 10 years between the two rival leaders, widely believed to detest each other. They sat at a conference table separated by South African President Thabo Mbeki who mediated the deal.

Mugabe and Tsvangirai have traded insults over the past decade, but shook hands and the end of the ceremony, with the opposition leader referring to Mugabe as "comrade".

The preliminary agreement was signed in Harare's Rainbow Towers Hotel after weeks of deadlock since Mugabe was re-elected on June 27 in a widely condemned poll boycotted by Tsvangirai because of violence against his supporters.

Mbeki said the agreement committed both sides to an intense process to try to complete substantive negotiations as quickly as possible. "All parties recognise the urgency," he said.

A subdued Mugabe said after the signing that the agreement was "to chart a new way of political interaction."

Tsvangirai called the ceremony "a very historic occasion" and stressed that a solution must be found.

"If we put our heads together, I am sure we can find a solution. In fact, not finding a solution is not an option," he said.

Officials said the framework agreement sets a two-week deadline for the government and two factions of the opposition MDC to discuss key issues including a unity government and how to hold new elections.

"It is envisaged that the dialogue will be completed within a period of two weeks from the date of signing of this MOU," says the memorandum, a copy of which was sent to the media.

The agreement bars all sides from taking "any decisions or measures that have a bearing on the agenda of the dialogue, save by consensus."

"Such decisions or measures include, but are not limited to, the convening of parliament or the formation of a new government," it says.

U.N. Secretary-General Ban Ki-moon welcomed the agreement.

Ban's spokeswoman Michele Montas said he hoped all sides would "engage, in good faith, in serious talks that would lead to a lasting solution to the political crisis and address the urgent economic and humanitarian needs of the Zimbabwean people".

WIDE DIFFERENCES REMAIN

A government of national unity has been promoted as a solution to the crisis by the African Union and the Southern African Development Community, both deeply concerned by a crisis that has flooded neighbouring states with millions of refugees.

Tsvangirai's MDC (Movement for Democratic Change) and Mugabe's ZANU-PF are also committed under the agreement to ease political tension within the two-week deadline.

Eurasia Group analyst Mike Davies said there were still wide differences between both parties to be overcome.

"This represents a small step in terms of the overall picture of moving towards negotiations," Davies said. "Some of the differences are so entrenched it is difficult to see how they could be resolved quickly."

Mugabe and Tsvangirai have been under heavy pressure to enter negotiations. They have both demanded to be recognised as Zimbabwe's rightful president.

Mugabe, 84, called for an end to Western sanctions against him and his ruling circle and said there was no need for intervention from Europe in Zimbabwe. He has frequently called Tsvangirai a puppet of former colonial ruler Britain.

Zimbabwe's economic collapse under Mugabe's 28-year rule has plunged the once prosperous country into inflation of at least 2 million percent as well as crippling food and fuel shortages.

Tsvangirai had previously refused to sign even a framework deal unless government militias stop violence he says has killed 120 of his supporters. He also wanted Mugabe to recognise his victory in the first round of the presidential poll on March 29.

The MDC leader pulled out of the run-off citing violence. Mugabe blames the opposition for the bloodshed.

The turning point in ending the deadlock appeared to be a meeting last Friday between Mbeki, the African Union's top permanent official Jean Ping, and U.N. envoy Haile Menkerios.

Mbeki, who has up to now negotiated alone as the designated regional mediator, agreed to expand the mediation process to include the African Union, United Nations and officials from the Southern African Development Community in a "reference group".

Mbeki is expected to liaise with the group although it will not be directly involved in negotiations. (Additional reporting by Paul Simao and Marius Bosch in Johannesburg, Michelle Nichols at the United Nations; Writing by Barry Moody; editing by Dominic Evans)

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