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Leader of the Christian Democratic Union of Germany (CDU) Angela Merkel is seen on a balcony of German Parliamentary Society offices before the exploratory talks about forming a new coalition government held by CDU/CSU in Berlin, Germany, October 26, 2017. REUTERS/Fabrizio Bensch


BERLIN (Reuters) - Chancellor Angela Merkel's Bavarian allies still hope a three-way coalition government can be formed by the end of the year despite deep divisions among negotiators on immigration and climate policy, a senior party member said on Friday.

Merkel, whose conservative alliance placed first but lost seats in the Sept. 24 election, is trying to form a government that unites conservatives, the Greens and the pro-business Free Democrats.

The three camps resigned themselves to further talks next week after making little headway on contentious issues and what one negotiator called "a big clash" during 11 hours of meetings on Thursday.

Manfred Weber, a senior member of the Bavarian conservative CSU who is involved in the talks, said the process would be "very difficult", but his party still aimed to reach agreement by the end of the year.

"Our aim is for the exploratory talks to be at the stage in mid-November where we can tell our (party) committees 'yes, this works, let us begin concrete negotiations'," Weber told broadcaster Bayerischer Rundfunk. "And then I hope we will have a new government by the end of the year."

Immigration was the most divisive topic on Thursday. Many conservatives want to take a harder line after blaming their election setback on Merkel's decision to open Germany to more than a million migrants in 2015 and 2016.

Negotiators will meet again next Monday and Thursday, when they want to work out a solution on refugee policy, sources close to the talks said.

An agreement reached between Merkel's CDU and the CSU to cap annual refugee numbers had to be the basis of any coalition accord, Andreas Scheuer, CSU general secretary, said after Thursday's talks. The Greens oppose a refugee cap.

Deputy FDP leader Wolfgang Kubicki said he was "depressed" by how the talks were being conducted, adding that all parties should be ready to compromise.

He told the RND newspaper chain that no coalition agreement could be reached if the Greens insisted that carbon dioxide emissions had to be reduced by 40 percent by 2020 from their level in 1990.

"The Greens are the smallest potential coalition partner. I they insist on all their demands, we'll have to look each other in the eye and say, 'Bon voyage'," he told the paper.

The Greens' top candidate, Katrin Goering-Eckhart, said on Friday her party could not continue negotiations unless all the parties agreed to climate pledges Germany had already accepted.

But Greens leader Cem Ozdemir warned against overinterpreting the tensions that surfaced on Thursday.

"So we had one big clash, but that's part of what happens with these issues," Ozdemir told the Stuttgarter Zeitung newspaper.

Politicians say it could take months to form the coalition, leaving Germany hobbled as the European Union looks to its wealthiest country for leadership on governance reform.

(Writing by Paul Carrel and Andrea Shalal; editing by Andrew Roche)

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