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ALMATY, Kazakstan - The leaders of Armenia and Azerbaijan, under domestic and outside pressure to formally end their 13-year war, seem nearer than ever to a peace agreement in their territorial dispute. An accord could remove a key peril to Caspian Sea oil development. Yet their negotiations remain fragile. Last week, Azerbaijan President Heydar Aliyev compared Armenia to Hitler's Germany and vowed that it will "be punished" for what he considers Armenian aggression. Armenian President Robert Kocharian has said he is ready to return to the battlefield if Mr. Aliyev so wishes. "There are no guarantees how this is going to come out. But you hope it can" succeed, says Richard Kauzlarich, a former U.S. ambassador to Azerbaijan. Next month, the two presidents are to meet in Geneva for their 17th round of negotiations, which are being mediated jointly by the U.S., France and Russia. The U.S. considers a settlement crucial to stabilizing the fractious Caucasus, across which it has backed the construction of oil and natural-gas pipelines from the Caspian to the world market. President Bush has made the talks a rare exception to his arms' length approach to foreign disputes. Continuing a Clinton-era strategy, President Bush last month met the two leaders separately after they concluded their last round of talks in Key West, Fla. The dispute centers on a majority ethnic Armenian pocket of Azerbaijan called Nagorno-Karabakh. A truce was signed in 1994, after 30,000 deaths and the expulsion of hundreds of thousands of Azeris from Nagorno-Karabakh and a swath of surrounding territory. Since then, regular talks have been held, mainly without progress. According to details leaked from the last two rounds of talks, Armenia would keep Nagorno-Karabakh but withdraw from much of the rest of the occupied territory. It would also keep a corridor linking Nagorno-Karabakh with Armenia proper. Azerbaijan would obtain a corridor to an isolated Azerbaijan region called Nakhichevan. Nagorno-Karabakh arouses emotions in both republics, and any settlement will be difficult to sell to the nations' people. Yet both republics are under domestic pressures. Local and foreign analysts believe Mr. Aliyev, 78 years old and in visibly worsening health, wants to conclude a deal, then transfer power to his son, Ilham, who might have less authority to sell a deal at home. Armenia - which defeated Azerbaijan on the battlefield - has no oil and is struggling far more economically than its neighbor. "Both countries need peace," says Vafa Guluzade, Azerbaijan's former negotiator with Armenia. "But the peace must be as just as possible." Write to Steve LeVine at steve.levine@wsj.com Copyright 2001 The Wall Street
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