MANILA, July 29 (Reuters) - The Philippines and its largest Muslim rebel group agreed on Wednesday to resume formal talks next week to try to end 40 years of conflict in the south, officials said.

Manila and the Moro Islamic Liberation Front (MILF) held a two-day informal meeting in Kuala Lumpur which ended with the agreement to resume talks on Wednesday ahead of President Gloria Macapagal Arroyo's scheduled meeting with U.S. President Barack Obama at the White House on Thursday.

"The meeting ended on a high note with both sides expressing a common desire to restore trust and confidence in addressing major issues in order to pave the way for the early resumption of the stalled peace negotiations," a joint statement said.

Camilo Montesa, spokesman for the government's peace panel, said the two sides agreed on a mechanism to help hundreds of thousands of displaced people on the southern island of Mindanao to return to their homes and farms, hoping to empty shelter areas before the start of Ramadan, Islam's holy month, in late August.

"While we are happy that the talks are back on track, the challenge to bring a durable peace in Mindanao remains," he said.

Last week, both the government and MILF announced unilateral truces, ending nearly 12 months of violence that has killed 600 people and displaced about 700,000 in six southern towns on Mindanao. (Reporting by Manny Mogato; Editing by Rosemarie Francisco)

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