Top U.S. diplomat begins tough Gulf talks on easing Qatar row

JEDDAH, Saudi Arabia (Reuters) - U.S. Secretary of State Rex Tillerson began talks with four Arab states on Wednesday in efforts to ease a boycott of Qatar after the countries labeled a U.S.-Qatar terrorism financing accord an inadequate response to their concerns.

Any resolution of the dispute must address all the key issues for Saudi Arabia, the United Arab Emirates, Bahrain and Egypt, including Doha's undermining of regional stability, a senior UAE official said ahead of the talks in Saudi Arabia. His comments shed light on Tillerson's uphill challenge.

The four countries imposed sanctions on Qatar on June 5, accusing it of financing extremist groups and allying with the Gulf Arab states' arch-foe Iran. Doha denies those accusations. The four states and Qatar are all U.S. allies.

Tillerson arrived in the Red Sea port city of Jeddah where he met ministers from the four nations to seek an end to the worst dispute among Gulf Arab states since the formation of their Gulf Cooperation Council regional body in 1981. Kuwait, which is mediating in the dispute and not boycotting Qatar, also sent an envoy.

Tillerson also met Saudi King Salman and they discussed regional developments, especially efforts to combat terrorism and its financing, the Saudi state news agency SPA said.

On Tuesday, shortly after Tillerson signed a memorandum of understanding in Doha on combating the funding of terrorism, the four countries issued a statement labeling it as inadequate.

They also reinstated 13 wide-ranging demands they had originally submitted to Qatar, the world's biggest producer of liquefied natural gas, but had later said were void.

The demands include curbing relations with Iran, closing the widely watched Al Jazeera TV channel, closing a Turkish military base in Qatar and handing over all designated terrorists on its territory.

The crisis goes beyond the financing of terrorism, said Jean-Marc Rickli, a risk analyst at the Geneva Centre for Security Policy, pointing to Gulf fears about the role of Iran, internal instability and the regional influence of the Muslim Brotherhood as well as competition for regional leadership.

"Whatever the outcome is, one of the two sides will lose face and losing face in the Arab world is something important. The consequences for the future will be negative for at least one camp or the other."