Dili – East Timor's president said Monday he was pushing political parties deadlocked since elections last month into forming a unity government but they were disputing who would be prime minister.

"I think that in order to maintain unity and stability in this country, my idea of inclusive government is the best," President Jose Ramos-Horta, who has the final say on the government's composition, told reporters.

The ruling Fretilin party won 21 seats in the tiny nation's 65-seat parliament in June 30 elections, well short of the majority required to govern.

Trailing in second place was a new movement set up by independence hero Xanana Gusmao, which has allied with three smaller parties and proposed to form a coalition government with 37 seats in parliament.

Ramos-Horta said he feared the alliance proposed by Gusmao's National Congress for the Reconstruction of East Timor (CNRT) would be unstable, but that Fretilin could not form a government as it had won insufficient votes.

"The alliance, they are open and flexible towards this idea," he said, referring to a unity government. The problem is who will be prime minister, whether it is from Fretilin or from the alliance... I will let them continue to reflect," he said.

The parties first met on Friday for talks with Ramos-Horta, a Nobel peace laureate who was elected to his post in May.

Fretilin's former prime minister Mari Alkatiri and Gusmao, sworn political rivals, have headed the negotiations.

The first session of parliament for the new government has been set for July 30.

Elections in the former Portuguese colony followed ongoing violence and political tension since bloodshed on the streets of the capital, Dili, last year. The unrest left 37 people dead and forced 150,000 into camps.

International peacekeepers were deployed to restore calm and along with some 1,700 UN police are still providing security in the half-island nation. East Timor gained independence in 2002 after a bloody separation from occupying Indonesia, which ruled it for 24 years.