``Ethiopia and Eritrea have deferred their war against poverty,'' Madavo told Reuters. ``The only battles these two countries ought to be involved in are battles against poverty, battles to reverse poor living conditions of their people.''

``These are the aspirations of ordinary Ethiopians and Eritreans. We have told the two countries that there cannot be new lending before they revert to these important battles,'' Madavo added.

The World Bank has programmes worth hundreds of millions of dollars in both countries. Madavo said existing projects were being implemented to the best levels possible but fresh lending initiatives were not being considered.

Tens of thousands are reported to have been killed in the Ethiopia-Eritrea war, which began in May 1998.

Attempts to reach a peaceful settlement, led by the Organisation of African Unity, have proved fruitless.

Madavo said Africa had seen leaders such as Prime Minister Meles Zenawi in Ethiopia and President Isayas Afewerki in Eritrea as a new breed but the conflict had scattered that dream and set Africa backwards.

``It is a very costly war. It is the type of thing that we would like to avoid. We have encouraged the two governments to try to resolve their dispute,'' he said.

The feudal monarch believed to be the 255th king in unbroken line since Menelik I, the son of King Solomon and Queen Sheba, was deposed on September 11, 1974, after ruling the Horn of African country for half a century.

His overthrow by the forces of Marxist dictator Mengistu Haile Mariam made way for one of the darkest chapters in Ethiopian history in which tens of thousands of civilians were killed or tortured in the ``Red Terror'' purges.

But eight years after guerrilla forces seized control of the capital Addis Ababa and formed a new government, no public events marked the anniversary and the Emperor's name was not mentioned even in private papers which claim to be pro-royalist.

Instead, on the eve of the Ethiopian New Year, residents of the capital shopped for gifts or went to suburban cattle markets to buy sheep or oxen to be slaughtered on Sunday.

Haile Selassie, widely credited for introducing modern education and technology to his desperately poor country, was murdered in custody a year after he was deposed.

The body of the 83-year-old Emperor was exhumed in 1992 after it was found buried under a toilet in the grounds of the Imperial palace.

The body is being kept temporarily at the Mausoleum of Emperor Menelik II, until an official burial ceremony, planned for May 5, 2000, is held.

While the Emperor has been officially dead since 1975, members of the Jamaican Rastafarian sect dispute that the body dug up at the palace is that of the man they regard as their god. Rastafarians claim the Emperor is still alive and waiting to preside over judgment day.

Ethiopia said that ``technical'' arrangements to resolve the war still did not clarify whether Eritrea would withdraw from the disputed town of Zalambessa and from Bure, a third front on the southeastern edge of their border.

``The withdrawal of Eritrean troops from areas they have occupied by force and the return of the territories fully to their former administration is a matter of fundamental prinicple for Ethiopia,'' the foreign ministry said in a statement.

Tens of thousands of soldiers are reported to have been killed in the conflict between two former allies, which started in May, 1998, over border land which both sides claim.

The main battles have been around the towns of Badme, Zalambessa and Bure across fixed front lines with both sides using heavy artillery and air power to pound ground troops.

Eritrea occupied disputed land at Badme and Zalambessa during the war's first phase, but Ethiopian troops recaptured ground at Badme during an intense battle in February.

Eritrea said on Monday the Ethiopian government statement was a complete rejection of the deal worked out by mediators from the OAU, the United Nations, the United States and Algeria. ``Ethiopia's statement is tantamount to a declaration of war,'' Eritrea's foreign ministry said in a statement.

The OAU has led efforts to end the war. Both sides in February accepted in principle a ``framework agreement,'' under which Eritrea would withdraw from ``Badme and its environs'' to territory it held before the war began.

Last month in the Algerian capital, both sides accepted ``modalities'' for ending the fighting, leaving only the technical arrangements to be sorted out.

But, despite appearances that the conflict could be resolved soon, disagreements over the ``technical'' stage of implementation appear to go to its heart.

A senior Ethiopian diplomat in Nairobi said there remained a question mark over the monitoring force to implement the deal.

More importantly Eritrea must withdraw from the occupied land, he said.

``The most important is the identification of the areas (for withdrawal) because it is at the core of the problem,'' the diplomat said. ``If the Eritreans don't accept that these areas were occupied by them, then the whole thing becomes zero.''

In response, Eritrean ambassador Ghirmai Ghebremariam said the OAU deal only referred by name to ``Badme and its environs'' and argued Ethiopia was looking for ``something new'' at the technical stage. Other issues could be resolved during implementation and after a ceasefire had been signed, he said.