ADDIS ABABA, Sept 26 (Reuters) - Ethiopian Prime Minister Meles Zenawi said on Saturday he was not optimistic that the border dispute with Eritrea could be resolved peacefully, but efforts to find a negotiated solution were not yet exhausted.

``Statements coming from Eritrea have been strident. I am not very optimistic, but will keep on trying until all peaceful avenues are closed to us,'' Meles said in an interview with Reuters.

Meles, looking relaxed and wearing a sports jacket, talked to Reuters in the garden of the prime minister's office.

He said the Ethiopian army was prepared to evict Eritrean forces from disputed territories, but only when it was clear that a peace initiative by a group of African leaders under the auspices of the Organisation of African Unity (OAU) had failed.

``The ongoing peace initiative of the Organisation of African Unity (OAU) mechanism will have to be consummated,'' he said.

President Blaise Compaore of Burkina Faso, current chairman of the OAU, plans to call a meeting of African leaders soon in Ouagadougou to discuss the Ethiopia-Eritrea border dispute, OAU sources said, without giving further details.

``The Ethiopian government has no deadline to launch war against Eritrea, but if we are convinced that all peaceful options have failed then there is no reason for us to wait a day longer,'' Meles said.

Ethiopia accepts a peace initiative brokered by the United Staates and Rwanda and endorsed by the OAU and the United Nations which calls for Eritrea to withdraw to positions held before May 6, when the conflict erupted.

But Eritrean President Isayas Afewerki rejects the proposal, saying an international monitoring force must be put in place before a withdrawal. He has called for face-to-face talks with Meles, which the Ethiopian premier has rejected.

Hundreds of people were killed in the ground and air battles fought on three fronts before fighting subsided in mid-June.

Diplomats say both nations have used the lull to build up massive reinforcements of troops and artillery on each side of the front line.

Meles said Ethiopia had no intention of occupying Eritrean territory but warned Eritrea that the consequences of a war would be disastrous.

``If we have to fight against Eritrean forces, we will not only evict them from our territory, but we will make certain that that country would never again be a threat to regional peace,'' he said.

While Ethiopia has superior military might on paper, Eritrea has a highly trained and effective army which, as a rebel force, played a key role in bringing down the Marxist regime of Mengistu Haile Mariam in 1991. Eritrea gained its independence from Ethiopia by friendly consent two years later.

There are doubts about the strength of the Ethiopian airforce, as a deal struck three years ago with Israel for the repair of its fighter jets has been affected by the dispute.

Meles said the conflict had ``complicated'' the return of the jets ``but in view of the complications created we have taken precautionary measures,'' he added without elaborating.

He did not say how many jets had been sent for repair in Israel, but media reports in Addis Ababa have put the number at ten.