By Opheera McDoom

KHARTOUM, Sept 2 (Reuters) - China's ambassador to Sudan on Sunday said dialogue, not threats of sanctions, will help create peace and stability in Darfur.

British Prime Minister Gordon Brown and French President Nicolas Sarkozy on Friday revived the threat of sanctions on Khartoum if the crisis in Darfur is not resolved.

"Sanctions cannot help to solve the problem," Li Chengwen said in a rare interview, noting U.S. sanctions imposed since 1997 had prevented railways from upgrading old trains.

"The sanctions made big problems for the railway fields (because) many goods are waiting to transport to Darfur."

A state-owned Chinese company has signed a $1.15 billion contract with Sudan to build a railway from Port Sudan to Khartoum to replace a slow, tattered link.

Li told Reuters: "Dialogue is better than pressure because with sanctions, who will suffer in the end -- the people."

Most of Sudan's goods and those sustaining the world's largest humanitarian operation in Darfur arrive at Port Sudan but transport costs are sky high and roads plagued by bandits.

Experts estimate 200,000 people have been killed and 2.5 million driven from their homes during 4-1/2 years of conflict in Sudan's remote west.

Washington calls the Darfur rape, looting and killing genocide, a term Khartoum rejects and European nations are reluctant to use.

ACTIVISTS

Rights activists accuse China of selling Khartoum arms which end up in Darfur and of watering down U.N. Security Council resolutions against Sudan.

Chinese officials, especially in Sudan, had been reluctant to comment on Darfur until Beijing appointed a special Darfur envoy earlier this year.

Li said it adhered to strict policies in its military cooperation with Khartoum.

"Do not interfere with internal affairs. Do not threaten the stability for the region and do not transfer to a third party... we have pursued these principles from the beginning to now," he said.

He said Chinese military cooperation aimed to "strengthen ... self-defence capabilities not to make trouble."

Asked if China was worried Chinese arms were being used in Darfur, he said: "Everyone knows that the weapons in Darfur come from different sources and over a long period of time and they are not from one country."

"But I can say we have nothing to do with that."

Li said the root causes of the Darfur conflict were poverty and a lack of development, and said China would work to develop Darfur's economy once a peace deal was agreed.

He called efforts to use the Olympics as leverage on Darfur "ridiculous", adding "any effort to link the Olympic Games to Chinese-Sudanese political relations or Darfur violates the spirit and principle of Olympia" and was "doomed to fail".

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