(Adds White House spokeswoman comments)

By Tabassum Zakaria and Barry Moody

DAR ES SALAAM, Feb 17 (Reuters) - U.S. President George W. Bush discussed the bloody conflict in neighbouring Kenya with Tanzania's leader on Sunday before showering him with praise and signing over a $700 million development grant.

Bush's talks with President Jakaya Kikwete, new chairman of the African Union, on the second day of his tour of the continent covered the trouble spots of Kenya, Darfur and Zimbabwe.

On Saturday, Bush threw his weight behind a power-sharing deal to end the Kenyan violence which has killed 1,000 people since a disputed presidential election in December. He is sending Secretary of State Condoleezza Rice to Nairobi on Monday to help mediation by former U.N. chief Kofi Annan.

In a news conference with Kikwete, Bush emphasised the United States wanted to help Annan and not dictate terms to end the Kenya crisis.

Bush said he and Rice had discussed with Kikwete "not what we should do to dictate the process but what America can do to help the process move along". But Washington has threatened sanctions against anyone blocking a power-sharing deal.

Kenyan Foreign Minister Moses Wetangula warned outsiders on Sunday against trying to force a deal on his country.

"We encourage our friends to support us and not to make any mistake of putting a gun to anybody's head and saying 'either-or', because that cannot work," he said.

Rice does not expect to come away from Monday's meetings with a final deal, White House spokeswoman Dana Perino told reporters. She also said Rice would not be bringing any incentives to the table.

The government of President Mwai Kibaki has been wary of mediation and solutions imposed from outside. Analysts say government hardliners believe they have all the cards to sit tight and consolidate their hold on power.

Kenya's opposition says Kibaki's party stole the election.

MUTUAL ADMIRATION

Washington views Kikwete as a model progressive leader.

"You are a good man, Mr. President, and I am proud to call you friend," Bush told Kikwete, as screeching peacocks strutted on the lawn in front of Tanzania's white State House.

Kikwete said thousands of people in Tanzania were alive only because of Bush's programmes to fight malaria and AIDS -- a major focus of his five-nation tour.

"You will be remembered for many generations to come for the good things you've done for Tanzania and the good things you have done for Africa," he told Bush.

Bush, on his second visit to Africa since becoming president, and Kikwete signed the largest grant by the Millennium Challenge Corp., which provides funding to countries which pursue democracy and sound economic policies.

The grant, worth $698 million, will help improve roads, electricity and water supplies. "My hope is that such an initiative will be part of a effort to transform parts of this country to become more hopeful places," Bush said.

Kikwete told Bush the grant "speaks volumes about how deep you have Tanzania in your heart".

The east African country is the centrepiece of a tour intended to show the successes of Bush's health and humanitarian policies on the continent, during a presidency dominated by his controversial handling of Iraq, Afghanistan and Somalia.

Bush and his wife Laura visited a U.S.-funded AIDS clinic in a Dar es Salaam hospital.

Later, drawing attention to what is seen as a growing radical Islamist threat in the Horn of Africa and the Sahel region, Bush met families of victims of an al Qaeda attack on the U.S. embassy here in 1998.

Bush and his wife bowed their heads during a ceremony in front of a plaque from the bombed mission, mounted on a rock in a new embassy built in a different location after the attack.

The bombing coincided with an assault which destroyed the U.S. embassy in Nairobi. Some 240 people died in the attacks.

Bush is avoiding Africa's conflict zones on his tour.

The United States regards the presidents of Benin, Tanzania, Rwanda, Ghana and Liberia as a new generation of democratic African leaders and is backing them with health and education support and some military cooperation. (Additional reporting by Deborah Charles; writing by Barry Moody)

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