(Adds quotes, Annan meeting with Kibaki postponed)

By Andrew Cawthorne and Nick Tattersall

NAIROBI, Jan 23 (Reuters) - Police fired teargas to disperse stone-throwing youths near an opposition funeral in Kenya on Wednesday, but former U.N. boss Kofi Annan managed to broker a halt to further street protests after weeks of unrest.

On his first day in Kenya, Annan persuaded the opposition Orange Democratic Movement (ODM) to call off demonstrations scheduled to resume on Thursday, although he did not meet President Mwai Kibaki as originally planned.

"On the request of the mediation team, we have called off the activities we had planned for tomorrow to give this mediation effort the best chance," a top ODM official, William Ruto, told reporters after party leaders met Annan.

Officials said Annan would now meet Kibaki on Thursday.

In chaotic scenes at the funeral, several teargas canisters landed in a Nairobi football field where coffins were laid out and opposition leader Raila Odinga was winding up an oration for 28 slum-dwellers he said were shot by police.

Pro-opposition youths then set fire to a nearby post office.

"This is a war between the people of Kenya and a small clique of very bloodthirsty people who want to cling on to power at all costs," Odinga told the crowd of mourners as violence erupted on a road outside.

Annan's talks were designed to resolve a stalemate that threatens to wreck the east African country's stable image.

Odinga says Kibaki stole a narrow victory in the Dec. 27 election, which has split the country of 36 million down the middle. Adding to a death toll of about 650 since the vote, at least two more people were killed in a Nairobi slum.

The former U.N. chief met Odinga after talks with the speaker of parliament and Ugandan President Yoweri Museveni, who is also trying to mediate and is concerned about the impact that a prolonged crisis in Kenya would have on his own country.

Museveni is one of few African leaders to have congratulated Kibaki on his victory and the opposition questioned his role.

"If President Museveni has any input to make ... he should make it through the mediation team," Ruto said.

CAR OCCUPANTS BEATEN

Police had eased a ban on public demonstrations, in place since Kibaki's swearing-in on Dec. 30 prompted rioting and looting, to permit the memorial led by the ODM for what it called the "freedom fighters" of Kibera slum.

The day began peacefully as hundreds of supporters marched from Kibera, a stronghold of Odinga's Luo tribe. But the event turned violent when about a dozen youths stopped some cars, smashed windows and beat non-Luo occupants.

Police moved in but held fire, witnesses said, as a growing crowd of youths threw rocks at them. They eventually responded with charges and salvoes of teargas, some of which landed in the field, terrifying mourners and scattering ODM leaders.

ODM later complained police had assaulted peaceful mourners.

World powers have called on Kibaki and Odinga to hold urgent talks after more than three weeks of unrest and many ordinary Kenyans are disgusted that they have so far failed to do so.

After meeting Annan, newly elected Parliament Speaker Kenneth Marende said face-to-face discussion between the two Kenyan leaders "is going to be on the table".

Illustrating the urgency of Annan's mission, two men were found dead -- one stoned and one decapitated -- in Nairobi's Kariobangi slum. Area police commander Paul Ruto said the fighting was between Luos and Kibaki's Kikuyu ethnic group.

At least eight other people were reported killed in the city and the Rift Valley, local media said.

Odinga has demanded Kibaki stand down or face a new election, which some diplomats have cautioned against as having too much potential for further bloodshed.

Odinga hinted he might accept the creation of a prime minister's post for him. "We are ready to share power with him. He remains president and we take the position of prime minister," he told Germany's ARD television. (Additional reporting by Joseph Sudah, Duncan Miriri, Bryson Hull; writing by Tim Cocks and Nick Tattersall; editing by Philippa Fletcher)

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