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By Claudia Parsons

NEW YORK, June 14 (Reuters) - Expressing concern about Turkey's troop buildup on its border, Iraq's foreign minister urged Ankara on Thursday to rely on dialogue to deal with separatist Kurdish rebels inside Iraq.

Turkey, a NATO member, has been increasingly exasperated by Kurdistan Workers Party, or PKK, attacks and by the failure of its ally the United States to deal with what Ankara says are about 4,000 rebels holed up in northern Iraq.

Turkey recently sent tens of thousands of troops, as well as tanks and other military equipment, to the border area and Baghdad sent a letter of protest last week about what it said was intensive Turkish shelling of areas inside Iraq.

Turkey's top generals have urged the government to authorize an incursion into northern Iraq.

Iraqi Foreign Minister Hoshiyar Zebari said in New York that Turkey's concerns about the PKK were legitimate but that his government had long shown its willingness to work with Ankara on ways to stop the rebels harming Turkish interests.

"This issue of the PKK can only be resolved through dialogue," Zebari told a meeting of the Council on Foreign Relations.

He said the dialogue should involve the Turkish and Iraqi governments, the United States and the regional government in the semi-autonomous Kurdish area of northern Iraq. He said Turkey had not shown enthusiasm for that, pushing instead for bilateral talks with the United States on the issue.

Turkey has long viewed the northern Iraqi Kurds with suspicion, fearing they want to set up an independent state that Ankara fears would fuel unrest in Turkey.

Turkey also worries that Kurds want to seize the oil-rich Iraqi city of Kirkuk, which sits just outside the Kurdistan region and is home to Turkish-speaking Turkmen.

Zebari said the Turkish troop buildup and the shelling had sparked "serious concern that this could be a prelude to a major incursion," but so far no such action had taken place.

Turkish Prime Minister Tayyip Erdogan signaled on Tuesday that Turkey should focus on battling Kurdish guerrillas at home rather than in northern Iraq and he has made no move to reconvene parliament to approve any major incursion.

"(I'm) very encouraged by what the prime minister recently stated," Zebari said.

He said while the Iraqi government condemned "all acts of terrorism," it was struggling with its own security problems due to the insurgency in Baghdad and other parts of Iraq.

"We've been very honest," Zebari said. "We're fighting in the neighborhoods of Baghdad. We can't release Iraqi troops to the Kurdish mountains."

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