Kenya's rival leaders signed Thursday a power-sharing deal brokered by former UN chief Kofi Annan to end a bloody two-month political crisis that has split the nation along ethnic lines.

President Mwai Kibaki and opposition chief Raila Odinga signed the accord on forming a coalition government outside the president's office.

The deal creates the post of prime minister and two deputy prime ministers in a bid to break the political deadlock created by contested presidential elections that triggered unrest across the country, killing more than 1,500 people and displacing 600,000 more.

Chief mediator Annan and Tanzanian President Jakaya Kikwete, who heads the African Union, were present at the ceremony.

"We have come to an understanding on the coalition agreement," Annan told reporters.

"I am pleased to be able to tell you and the citizens of Kenya that the two leaders this afternoon completed work on... how to overcome the political crisis. I commend all those whose efforts have made this possible."

Annan urged parliament to convene soon to pass the bill allowing the creation of a coalition government.

Odinga said the new government, which he thought would be up and running by about the middle of March, would look to make significant constitutional, electoral and land reforms within its first year.

"First, we have to bring a bill to parliament and it has to be approved, assented by the president," the opposition leader said.

"After that, the government will be put in place and I think we will form the government in the third week of the month of March," he told Sawa radio.

Kenyans took to the streets mainly in the coastal city of Mombasa and the lakeside city of Kisumu to celebrate the deal.

"We are very happy because finally they have agreed," said Mike Omondi, 35, a resident of the Nyalenda slums in Odinga's heartland of Kisumu. "We now have our share," he added.

Negotiators had previously failed to agree on a power-sharing formula to resolve the crisis that erupted after Odinga accused Kibaki of rigging the December 27 presidential election.

At Annan's request, Odinga cancelled opposition rallies called for Thursday and went back into talks, but as negotiations resumed, police reported another deadly attack overnight in the western Molo district of the Rift Valley.

Three people were killed, five others wounded and more than 30 huts torched, Rift Valley police commander Joseph Ashimala said.

"They were attacked and shot with arrows when more than 100 youths raided villages and torched houses," Ashimala said.

Police said most of the houses torched belong to people who had recently returned after being evicted from their homes in the recent violence.

A local member of Kibaki's Kikuyu tribe, Irari Mugo, said the attack was carried out in the early morning by people from the Kalenjin tribe.

"The Kalenjin came and started burning houses. Police were slow in responding. When they arrived the Kalenjins had already burned them," Mugo said.

Although the Kikuyu are the largest of the east African country's many tribes, they are a minority in western Kenya, where people overwhelmingly back Odinga, a Luo, who also has strong support from the Kalenjin.

The United States welcomed the deal between Kibaki and Odinga to form a coalition government, while Prime Minister Gordon Brown of former colonial ruler Britain hailed it as a "triumph for peace and diplomacy."

"We will be watching very carefully to see how it proceeds," US State Department Tom Casey spokesman said.

Casey said it was important that the constitutional changes the agreement called for also took place, so that "the kind of conflict and the kind of situation we saw after these elections does not occur again in the future."

"We certainly would hope that everybody associated with their political parties and movements would work with them to support this deal and move forward," Casey said.

Kibaki has said the post of prime minister and two deputies will be created under the current constitution pending a comprehensive constitutional review in 12 months.

The main issue dividing the two sides appeared to have been how much power the prime minister would be granted in a nation that provides constitutionally for strong presidential rule.

Kenya's political rivals on Monday vowed to hasten talks to resolve longstanding disputes over land and wealth behind a post-election crisis that ruined the country's image as one of Africa's most stable democracies.

But in a grim reminder of how much work remains, 12 people were killed and six seriously burned on Monday in the latest in a series of land clashes in the Mount Elgon region near the Uganda border.

"As a result, 12 people were killed ... Ten houses were burned to ashes and six people were seriously injured," police spokesman Eric Kiraithe said in a statement.

The victims -- five children, four women and three men -- were from three families and were either burned, shot or hacked to death after a rival subclan of the Kalenjin tribe accused them of giving information to their enemies, he said.

The attack appeared to be unrelated to the waves of violent ethnic conflict that broke out after President Mwai Kibaki's disputed re-election in a December 27 vote. Mount Elgon for more than a year has suffered bloody property feuds.

Kenyans exhausted by more than a month of looting, rioting and ethnic killings have welcomed a power-sharing deal signed last week to end turmoil that has driven away tourists and dampened economic prospects.

Having brokered the deal, former U.N. boss and chief mediator Kofi Annan urged Kenyans to support the agreement and hold their leaders to the promises -- including land and electoral reforms -- made to them.

Annan, who handed over day-to-day mediation to Nigeria's ex-foreign minister Oluyemi Adeniji, had said long-term issues should be resolved within a year, but political negotiators were hopeful they could speed up their work.

"We are all unanimous that we are going to wind up tomorrow," government negotiator Mutula Kilonzo told reporters after discussions chaired for the first time by Adeniji.

'MAJOR ISSUES'

Opposition negotiator William Ruto said the "major issues are really out of the way."

"What is remaining at the moment ... how to get to a new constitution in two months and the issue of setting up a truth, justice and reconciliation commission," he said.

Parliament is due to meet on Thursday to pass a constitutional amendment to allow for a coalition government led by Kibaki. His opposition rival, Raila Odinga, will take a newly created post of prime minister.

More than 1,000 people were killed and 300,000 left homeless in violence that erupted when Kibaki was sworn in as president. Odinga says he was robbed of victory.

The turmoil was expected to cost Kenya 260 billion shillings ($3.8 billion) in the first half of the year, according to a February 28-dated report by the Kenya Association of Manufacturers.

It said 100 billion shillings were lost in January alone, compared to the government's estimate of 60 billion.

Washington, which sent Secretary of State Condoleezza Rice to Nairobi to shore up Annan's mediation efforts, has given Kenya $14.7 million in aid.

In a "message of hope" published in the Daily Nation newspaper on Monday, Annan saluted Kibaki and Odinga for agreeing to share power and "in that single act of statesmanship, saved your beautiful country, which was about to self-destruct."

Despite the relief felt by most Kenyans, many are sceptical that the two men -- who fell out when Kibaki reportedly reneged on a previous agreement to create a prime minister's job for Odinga -- can overcome differences to work together.

Annan, who spent six weeks in Kenya, said he was touched that a rhino born in a game reserve was named after him.

"I am told that rhinos can live 40 or 50 years. I hope that during baby Kofi's lifespan, he will see a Kenya that only grows stronger, more unified, more prosperous and more peaceful as the years go by."

(Additional reporting by Bryson Hull, and additional reporting and writing by Katie Nguyen; Editing by Janet Lawrence)

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