KUWAIT Kuwait embarked on Tuesday on an exercise all too familiar to its people and potential investors -- assembling a new administration after the resignation of a government analysts said was plagued by internal differences.

At stake is the political stability of a tiny country of 2.2 million that owns a tenth of the world's oil reserves and has huge investments in Western multinationals, diplomats say.

The outgoing government, the 19th since Kuwait gained independence from Britain 40 years ago, had often come under attack in parliament for alleged weakness and responsibility for an economic slowdown despite a rise in revenue from oil exports.

The Head of State, Emir Sheikh Jaber al-Ahmad al-Sabah, was holding talks to name a new prime minister after accepting the resignation of a government that political scientists say has repeatedly failed to resolve longstanding internal differences.

The emir on Monday accepted the resignation presented by Prime Minister Sheikh Saad al-Abdullah al-Sabah after some ministers surprised a cabinet meeting on Sunday by insisting on stepping down.

Sheikh Saad, 72, has headed successive Kuwaiti governments dominated by members of Al-Sabah ruling family since he was first named crown prince of the Arab state in 1978.

According to the Constitution of the small but oil-rich country, the emir appoints a prime minister after holding "traditional consultations".

There has been no official indication when an announcement would be made or if there are plans for a major change in the arrangement of key posts. In addition to Sheikh Saad and the governor of the Central Bank, the foreign, oil, finance, defense and interior ministers are members of the ruling family.

Diplomats say the crisis was being closely watched in the Muslim conservative Arab region, governed by other ruling and royal families, where such public disputes are rare.

Other keen observers include the world's largest oil companies, which are competing fiercely for energy investment projects in the country's enormous oil fields.

The resignation stressed long-held views by many members of Parliament that the cabinet lacked harmony and that its work was hindered by disunity, politicians said.

The move spurred some political groupings to reopen the sensitive issue of splitting the jobs of premier and crown prince and touch upon alleged differences in the ruling family.

"It is now clear to all Kuwaitis that there is a difference between leaders of the government which is affecting performance and also has an impact of the ruling institution," said Islamist MP Hassan Jawhar, a U.S.-educated political scientist.

The move was triggered on Sunday when longtime Foreign Minister Sheikh Sabah al-Ahmad al-Sabah, the highly influential first deputy prime minister, insisted on his resignation despite its rejection by Sheikh Saad who urged him to withdraw it.

The Sunni Islamic Constitutional Movement, one of Kuwait's influential political groupings, issued a statement declaring that "the institution of the ruling family is a public matter" but stressed that Kuwaitis should not be "a party to any struggle or dispute within that institution".

It stated the value of the ruling family and said that it was "extremely urgent for that institution to resolve differences in view within it," rejecting any external interference which would further "deepen the difference".

Sheikh Saad said in a message to the emir that he presented the resignation due to "obstacles and circumstances which hinder" the cabinet's work, urging his acceptance.

He did not name the obstacles, although he did so in may 1999, blaming parliament for lack of cooperation. The emir then dissolved Parliament to end almost three years of internal paralysis due to repeated clashes in the assembly.

The current government was formed in July 1999 following general elections and included only one elected member of Parliament, the minimum number required by the Constitution.

The stock market dropped in January to a five-year low.

Since the restoration of parliamentary life a year after the 1991 war, Kuwait has seen frequent government reshuffles and political crises often triggered by clashes with the opposition-dominated Parliament.

It has 50 elected MPs and is the only such elected house in the Persian Gulf Arab region.

MP Abdullah al-Naibari of the Liberal Kuwait Democratic Forum renewed his groupings call for a split in the jobs held by Sheikh Saad, adding that the crown prince's health troubles in recent years further stressed a need for the step.

Jawhar, a member of Kuwait's minority Shi'ite Muslim sect, echoed the same view. "We have a problem. We (MPs) find it very difficult to question the government (prime minister) in parliament when it is headed by his highness the crown prince."

"We have been discussing this (a split) since 1992... But it has been faced by rejection (from Kuwait leaders). But this time, circumstances changed. The health of the crown prince is very important. His doctors recommend" a lighter workload.

Sheikh Saad has had medical treatment abroad several times since he had emergency colon surgery at home in March 1997.

Sheikh Sabah, also about 72, is the main government representative who acts as premier during Sheikh Saad's trips abroad. He is often seen as the man running day-to-day affairs.

(Reuter)