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By Fiona Ortiz
TEGUCIGALPA (Reuters) - An agreement to end a four-month political crisis in Honduras collapsed on Friday after two rival leaders failed to form a government of unity to heal the damage from a June coup.
Ousted President Manuel Zelaya declared the week-old pact dead and called on Hondurans to boycott a presidential election this month because, in a surprise move, de facto leader Roberto Micheletti said he would form a new government without him.
The demise of a U.S.-driven deal to end the crisis throws into question whether foreign governments will recognise the result of the November 29 election and means any incoming government could inherit a chaotic political situation and be cut off from vital international aid.
The United States and the Organisation of American States, or OAS, which had pushed the two sides into their agreement after months of delays, urged them to return to the table.
Zelaya and Micheletti had agreed to form a unity government by Thursday, but then they clashed over who would lead the cabinet until Congress decided whether to reinstate Zelaya.
"They need to stop making dire statements that this agreement is dead," State Department spokesman Ian Kelly said, adding Washington was disappointed with recent developments.
OAS head Jose Miguel Insulza deplored the breakdown but blamed the de facto government and said the elected president should be restored "without further subterfuges."
Zelaya, who was toppled and sent into exile in a June 28 coup, said he would not go back to the negotiating table.
"It's impossible. The thing is completely worn out and it makes no sense to continue," he told a Chilean radio station from the Brazilian embassy in Tegucigalpa, where he has been holed up since sneaking back into Honduras in September.
South American leaders demanded Zelaya's restitution and Brazil condemned the de facto government's "delay tactics". It also said Zelaya was welcome to stay in the embassy, where Honduran soldiers and military vehicles are deployed outside.
Inside, Zelaya called for peaceful protests by his supporters around the country and told his long-faced supporters "only God knows what happens next."
AID SUSPENDED
The impoverished coffee and textile-exporting country has been isolated diplomatically and cut off from millions of dollars of international aid since the coup.
Despite signing a pact to end the crisis, Zelaya declined to provide names for a unity government, saying it was offensive when it had not been decided who would lead it.
Micheletti said he was going ahead without them and his de facto cabinet resigned to make way for new ministers that he said were put forward by different political factions.
The Honduras crisis has brought back unwelcome memories of decades of military regimes, human rights abuses and political instability that plagued Latin America during the Cold War.
The United States celebrated last week's accord, but it turned out to be too vague and gave Zelaya no guarantees of return to finish the rest of his term to January.
Mark Weisbrot, co-director of the Washington-based Centre for Economic and Policy Research said the United States had promised Zelaya he would be reinstated through the accord.
"Either they are helpless or they deceived Zelaya. Either way it's not flattering," he said.
The agreement left it up to the Congress to rule on Zelaya's return to the presidency, but lawmakers were not given any deadline and dragged their feet on convening for a vote.
Once the accord was signed, Washington agreed to recognise the November election result even if Zelaya was not reinstated, giving up on earlier demands that he first return to power.
Several Latin American countries said on Friday they would not recognise the election result under current circumstances.
"But being practical, the only country that really matters as far as recognizing the elections is the United States because it buys our export products. The rest is meaningless," said Edmundo Orellana, a former defence minister for Zelaya.
He said social unrest could increase ahead of the November 29 election, and many of Zelaya's supporters want the United States and pile on pressure for him to be returned to power.
"We knew the coup-mongers weren't going to let him back," said Indira Mendoza, a rights worker protesting outside Congress. "Everything depends on the international community. We're going to pressure so they don't recognise the election."
Zelaya was forced into exile after the Supreme Court ruled in secret that he had illegally launched a drive to hold a referendum to gauge public interest in constitutional changes. Critics said he wanted to extend term limits, which he denies.
Congress then installed Micheletti as interim leader, but his government has failed to win recognition abroad, and human rights groups have documented abuses including deaths and the suspension of civil liberties.
(Additional reporting by Gustavo Palencia, Edgard Garrido, Sean Mattson and Mario Naranjo; Editing by Kieran Murray)

Reuters