(Recasts, adds AU, diplomat comment)

By Abdi Sheikh

MOGADISHU, Dec 24 (Reuters) - Somali President Abdullahi Yusuf has decided to resign, his spokesman said on Wednesday, in a move the African Union said would be positive for the peace process in the Horn of Africa nation.

Yusuf has been accused by donor countries and regional governments of being an obstacle to U.N.-hosted peace talks.

His rift with Prime Minister Nur Hassan Hussein has pushed the Western-backed interim government, struggling against Islamist insurgents, to the brink of collapse.

"The president has already written his resignation letter and he is expected to announce it on the coming Saturday," Hussein Mohamed Mohamud, a presidential spokesman, told Reuters, declining to give a reason for the decision.

The announcement came shortly after the resignation of a politician Yusuf named prime minister last week, who said he did not want to be an obstacle to peace in Somalia.

"The move is a dignified move on the part of the president. If his decision is to resign, I would congratulate him," said Nicolas Bwakira, the African Union Commission's Special Representative for Somalia.

"It is, overall, a good move. It will give the opportunity to all parties to form a new leadership," Bwakira told Reuters. "It will resuscitate the peace process."

Yusuf sacked Hussein earlier this month and appointed Mohamed Mohamud Guled instead, the man who quit on Wednesday.

Parliament and the international community backed Hussein, leaving the already weak government with two prime ministers. A regional bloc spearheading the peace process agreed on Sunday to sanctions on Yusuf and others seen as hindering the talks.

DIGNIFIED DEPARTURE

"I think it's positive and I hope there is a mechanism for letting Yusuf go with some sort of dignity," said a diplomat in the region, adding that his departure should smooth the way for a new government and an extension of its mandate.

"It will help the process go forward and the timing is right because any new unity government should look at the question of leadership ... I don't think it's going to do any damage."

Diplomats said Yusuf's departure could also help take the sting out of plans by Ethiopia to withdraw troops that have propped up the government for the past two years.

The Ethiopians drove Somali Islamists out of the capital at the end of 2006 and have been battling the insurgents ever since. Islamists now control all of the south and centre of the country expect Mogadishu and Baidoa, the seat of parliament.

More then 10,000 civilians have been killed during the two-year insurgency, a million people uprooted and a third of the population need emergency aid in a humanitarian crisis that has been described as one of the worst in the world.

Hussein is open to bringing the Islamist opposition into the peace process and says there is only a small group of hardliners who will never agree to talks, and they can be marginalised.

But analysts say Yusuf, a former warlord, was not interested in forming a broad-based coalition in government and undermined attempts by the prime minister to reach out.

While Washington is very wary of Islamists gaining power, because it fears Somalia will become a breeding ground for al Qaeda, some diplomats and analysts say that may be only option for stability in a country torn by violence for 17 years. (Additional reporting by Mohamed Ahmed in Baidoa and David Clarke in Nairobi; Writing by David Clarke; Editing by Helen Nyambura-Mwaura)

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