Honduras' ousted President Manuel Zelaya answers questions during a news conference in Managua,... 
(AP)
Honduras' interim government rejected a mediator's proposal to reinstate ousted President Manuel Zelaya and form a national unity government, throwing negotiations on settling the political crisis into doubt Saturday night.
Costa Rican President Oscar Arias, who is mediating the U.S.-backed talks, said both sides agreed to hold more talks Sunday, but he acknowleged they were far apart over how to end the dispute over a June 28 coup that toppled Zelaya and send him int exile.
"We have to make an effort to bring the positions closer," Arias, who won the 1987 Nobel Peace Prize for his role in ending Central America's civil wars, said at the end of Saturday's round of talks.
Zelaya had issued a midnight Saturday deadline for a deal, saying if he wasn't restored to power by then he would declare the talks failed. But his negotiators apparently agreed to extend the deadlline.
The exiled leader has vowed to slip back into Honduras to reclaim the presidency if the talks fail, and interim president Roberto Micheletti promises to arrest him upon arrival. The crisis over the June 28 coup has become a key test for democracy in Latin America and for U.S. diplomacy in the region.
During Saturday's talks, Arias issued a statement proposing a plan that would let Zelaya serve out the final months of his term, move up elections by one month to late October, grant amnesty for all political crimes committed before and after the June 28 coup, and include representatives of the main political parties in a reconciliation government.
But the proposal would limit Zelaya's power, obliging him to cede control of the military to an electoral court a month before the elections to ensure impartiality. He would also have to renounce his plan to hold a referendum on retooling the constitution, which was the spark that launched the coup after the Supreme Court, military and Congress all objected to the vote. Zelaya has said he is willing to cancel plans for the referendum.
