(Adds U.N., EU comment)

By Ahmed Mohamed

BAIDOA, Somalia, Nov 29 (Reuters) - Somalia's new prime minister met lawmakers and Western diplomats on Thursday to finalise his new cabinet, aiming to energise a government stalled by an Islamist insurgency and a refugee crisis.

Prime Minister Nur Hassan Hussein, confirmed overwhelmingly by Somalia's parliament on Saturday, is expected to name his ministers by Saturday or Sunday, officials said.

"The premier is still convening with the lawmakers representing the clans. He is now finally meeting the Darod clan and in a few days he will announce his cabinet ministers," government spokesman Abdi Haji Gobdon said.

Hussein and President Abdullahi Yusuf met with U.N. Special Envoy to Somalia Ahmed Ould-Abdallah and Georges-Marc Andre, the top European Union diplomat for Somalia, in Baidoa, the south-central trading town where parliament sits.

"I discussed with the president and prime minister the need to address the crisis in a peaceful manner by involving all Somalis in the future of their country," Ould-Abdallah said in a statement.

Andre said the European Union had 350 million euros ($518.3 million) to spend in development aid for Somalia in 2008, up from 163 million this year.

Parliament must confirm Hussein's appointments. No longer hampered by a law limiting ministerial posts to legislators, he is able to cast a wide net for what diplomats hope will be experienced technocrats cast in his mould.

A career public servant and lawyer who worked as a senior police officer and Somalia's attorney general, Hussein has won wide praise for his work heading the Somali Red Crescent Society since 1991.

That was the year warlords ousted dictator Mohamed Siad Barre and plunged Somalia into an anarchy from which is has yet to fully emerge. The interim government is the 14th attempt to establish an effective central authority since then.

"IMPORTANT ENDEAVOUR"

The European Union local presidency in Nairobi, represented by Portugal, said in a statement it was "encouraged by the professional experience of the new Somali prime minister ... which will certainly help him in such an important endeavour."

With just two years left in its mandate, the interim government must work quickly to build up Somali institutions to prepare the Horn of Africa nation for democratic elections due in 2009.

Meanwhile, media owners barred from broadcasting in Mogadishu considered a list of temporary laws that Mogadishu Mayor and former warlord Mohamed Dheere ordered them to accept or remain closed.

The rules bar interviews with government opponents, coverage of military operations without government permission and prohibit "false reports or criticism" among other things, a copy of the rules seen by Reuters says.

Also on Thursday, joint Ethiopian-Somali government forces searched insurgent strongholds in Mogadishu for a second day.

Sporadic fighting broke out on Thursday in the Sqa Holaha district. Several people were wounded and at least one person was killed overnight, witnesses said.

The insurgents and allied Ethiopian-Somali forces have battled in the capital since the New Year, after the latter routed a militant Islamist movement from the city during a lightning war to establish government control in south Somalia.

The fighting, in which thousands have been killed, has sent what the United Nations says is 600,000 people -- or more than half of Mogadishu's population -- fleeing the city. Another 400,000 have also been displaced inside the country. (Additional reporting by Bryson Hull in Nairobi and Aweys Yusuf in Mogadishu; Writing by Bryson Hull; Editing by Michael Winfrey)

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