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KATHMANDU, Friday (AFP) Nepal's government and Maoist rebels are expected to focus on ways to build trust after seven years of war, when they sit down for their second round of peace talks.

A ceasefire in the bloody conflict has held since January 29, but the negotiators - some of whom just months ago had bounties on their heads - have been treading cautiously.

"Without trust and confidence we cannot reach the reality of the peace dialogue," Maoist negotiator Krishna Bahadur Mahara told AFP.

"Without confidence and mutual trust how can we go ahead dealing with the major political and other pertinent issues which we put before the government negotiating team last month?" he asked.

But he also insisted the second-round talks be "result-oriented."

The first round was held on April 27 and both sides said after the five-hour, closed-door meeting that they were satisfied, but they gave little away about the discussions. The last peace process between the two sides broke down within four months in 2001 as the government refused to entertain Maoist demands to scrap the constitutional monarchy.

Potentially divisive demands remain: Mahara said the Maoists were seeking an all-party government and a "constituent assembly" to draft a new constitution.

The rebels also want army troops, deployed across the kingdom following the collapse of the 2001 truce, to return to their barracks, and the release of Maoist prisoners. And the Maoists are infuriated that a day after the first talks last month they appeared for the first time on the annual US blacklist of terrorist groups.

Washington classified the rebels in the second-tier of terrorist groups and not as a "designated foreign terrorist organization," which would make their funding illegal under US law.

But Maoist supremo Pushpa Kamal Dahal - known by his alias "Prachanda," or "The Fierce" - fired off a statement Thursday denouncing the United States, saying it was trying to "derail the peace process."

Also angering the Maoists have been statements by the Nepalese military that the United States has equipped them with sophisticated equipment - an implicit warning that it would be ready to fight off any potential Maoist recourse to arms.

"We want the army to observe strictly the 22-point Code of Conduct (on the ceasefire) and stop saying stupid things like cursing the Maoists because they have acquired better equipment, better training and fighting helicopters," Mahara said.

Quietly, however, the government and the Maoists have been working to smooth out the friction. On Tuesday Mahara and another Maoist leader, Ram Bahadur Thapa, met for more than four hours with two government ministers in a truce "monitoring committee."

"The meeting was very useful in helping generate a congenial atmosphere for the peace dialogue on Friday," said Ramesh Nath Pandey, the minister for communications and general administration and a government delegate to the talks.

"I think both sides are trying to prove they are partners for peace," he said. Another meeting of the committee is expected after the talks Friday.

More than 7,800 people have died since the Maoists launched their "people's war" in February 1996, devastating an economy heavily dependent on foreign tourists.

The tourism industry and human rights groups have been urging the Maoists and government not to give up the chance for peace. "The country is in dire need of peace and security," said Bhogendra Bahadur Thapa, a rights activist.

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