By Manny Mogato

CAMP DARAPANAN, Philippines, Nov 28 (Reuters) - The Philippines' largest Islamic separatist group is willing to reconcile with a rival group once Manila sets up an ancestral homeland for Muslims, a rebel leader said on Wednesday.

Muslim rebels have been fighting for self-determination in the south of the mainly Roman Catholic state since the late 1960s in a conflict that has killed 120,000 people, displaced 2 million and stunted growth in the resource-rich region of Mindanao.

"It's purely an internal matter between us and our brothers within the Moro National Liberation Front (MNLF)," Mohaqher Iqbal, chief peace negotiator of the Moro Islamic Liberation Front (MILF), told Reuters at a rebel camp in Mindanao's jungles.

"We strongly support the full implementation of the agreement between the government and the Moro National Liberation Front (MNLF). Our position is we're negotiating for a much better deal, but, we're open to accommodate the MNLF once we reach a political agreement with the government."

"The laws of nature are very clear. The bigger fish swallows the smaller," Iqbal said, referring to the MILF's proposed agreement with the government and the 1996 deal with the MNLF.

Iqbal said his group was negotiating to expand political, social and economic rights for Muslims as well as the physical areas covered by an autonomous region created based on a peace deal the government signed with the MNLF.

The MILF was formed in 1984 when its leaders broke away from the MNLF after the latter group accepted an autonomy offer from Manila during talks in Tripoli, Libya in 1976.

There are now apprehensions the MNLF would block efforts by the government to sign a peace deal with the MILF without first settling problems with the older rebel group.

The government and the MILF are likely to sign the deal by August next year, both sides have said. They agreed the boundaries of the proposed Muslim homeland at a pivotal meeting in Kuala Lumpur earlier this month.

FAKE AUTONOMY

MNLF leaders, however, have warned the government against rushing into a deal with the MILF without completing their commitments to the MNLF.

"I don't see how the government and the MILF could sign an agreement by next year when they have not really agreed on anything concrete yet," said Muslimin Sema, MNLF secretary-general and three-term mayor of Cotabato City on Mindanao.

"Besides, what's going to happen to our own agreement with the government?"

In 1996, the MNLF signed a second peace deal with the government, accepting an autonomy mechanism that was watered down when the agreement was converted into a law passed by the Philippine Congress.

Nearly 8,000 MNLF fighters were absorbed into the army and the national police while many senior cadres got elected or appointed in government, including its leader Nur Misuari who was governor of the autonomous region from 1996 until 2001.

Since 2002, Misuari has been under house arrest for trying to lead another rebellion on the southern island of Jolo after he accused Manila of reneging on its commitments under the peace deal.

"It was never a real or a genuine autonomy," said Sema.

He warned the government against rushing into an agreement with the MILF before first fixing problems with the MNLF because it would create perceptions Manila was "just trying to fool Muslims" by offering a new deal without carrying out an old one.

"We have no quarrel with the MILF," Sema told Reuters in Cotabato City.

"Perhaps, we can find ways to complement each other. But, we believe there's no other way to end the conflict in Mindanao, but to grant Muslims genuine autonomy." (Editing by Raju Gopalakrishnan and Jerry Norton)

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