An earlier cabinet deal between President Mwai Kibaki and opposition chief Raila Odinga fell apart on Monday, in a political reversal that prompted protests and fears of a return to turmoil and sent Kenya's shilling currency tumbling.

The formation of a 40-member cabinet is a milestone in a power-sharing deal brokered in February to end post-election riots and ethnic killings which claimed more than 1,200 lives in Kenya's darkest moment since independence in 1963.

U.S. ambassador Michael Ranneberger said that despite divisive rhetoric from both sides, the two men who must pull the east African nation out of its political quagmire were committed to making a deal.

"We expect that in a matter of days, or a week or so, there will be a coalition government," Ranneberger told reporters after separately meeting both men. "They are very close."

Odinga's side on Tuesday said it was walking out of the talks until Kibaki's side gave it more influential ministries. Protests also broke out in Odinga strongholds and police fired tear gas to quell them.

"It is not however a time for other people to be making statements that create an atmosphere of crisis," Ranneberger said, referring to politicians on both sides.

He said the main issue was "just a few ministries" that Odinga's Orange Democratic Movement (ODM) and Kibaki's Party of National Unity (PNU) each feel they should have.

The two Kenyan leaders said on Sunday they expected to name a cabinet the following day, but disagreement over ministries sunk the deal. Odinga skipped his planned meeting with Kibaki -- prompting new salvos of blame from each side.

'DISMAYED'

The opposition gave a less optimistic assessment than Ranneberger on Wednesday, with a spokesman saying the difference between the two sides was "extremely wide" and that Kibaki had not answered Odinga's latest letter on a solution.

"The notion that the president holds absolute power and the prime minister-designate can help him in running the country is completely unacceptable," opposition spokesman Salim Lone said.

Spokesman for the government and the president could not immediately be reached for comment.

Privately, both sides say they are making informal offers over the ministries in question -- cabinet affairs, foreign affairs, energy, local government and transport.

The latest setback came after more than a month of deadlock, which prompted Kenyans and international diplomats to pile pressure on Kibaki and Odinga to finish the deal.

Monday's reversal brought new urging from foreign capitals, including phone calls to Kibaki and Odinga from U.S. Secretary of State Condoleezza Rice, who in February became the highest-level Western official to visit Kenya over the crisis.

The African Union warned on Wednesday that the setbacks would "inevitably delay a return to normality in Kenya", while former colonial power Britain said it was dismayed.

"All sides must be prepared to make concessions to allow this to happen, including President Kibaki's supporters ceding some powerful portfolios," Britain's Foreign Secretary David Miliband said in a statement.