ANTANANARIVO (Reuters) - Madagascar’s army chief insisted on Friday that dialogue was the only way to end a standoff with rebel officers holed up in barracks in the capital, despite earlier government orders to quash the mutiny.

Soldiers patrol as they disperse crowds gathering near a barracks in Ivato, outside the capital Antananarivo, November 19, 2010. Madagascar's army chief held talks on Friday with a group of rebel military officers who had threatened two days earlier to topple the government and set up a ruling military council. Chief of staff General Andre Ndriarijoana visited the dissident officers in their barracks near the international airport for about two hours but left after discussions without making a statement. REUTERS/Siphiwe Sibeko

The apparent refusal by the army to use force against fellow soldiers raises doubts about how much control President Andry Rajoelina still retains over the same military that helped bring him to office in a March 2009 power-grab.

Early on Friday, the government warned civilians in the barracks and residents nearby to leave, while schools close to the camp by the international airport were evacuated.

Chief of staff General Andre Ndriarijoana then visited the officers at the barracks for talks but no action was taken to dislodge the rebels, who said on Wednesday they planned to topple the government and set up a military council.

“Confrontation is not the solution. Only dialogue and negotiations will resolve the situation,” Ndriarijoana told a news conference.

Political analysts said the longer the stalemate persisted, the more Rajoelina’s credibility would suffer and the likelihood of street protests against the government would increase.

“They’re losing face. They know it and it’s a big danger,” said Lydie Boka, analyst at Lille-based political risk consultancy StrategiCo. “Power is slowly tilting the other way.”

Prime Minister Camille Vital later said it had never been the government’s intention to storm the barracks and the steps taken in the morning were to prevent children and civilians from witnessing negotiations between soldiers.

He said the situation was in the process of being resolved.

Slideshow ( 3 images )

WIDER UNREST?

The unrest in the world’s fourth largest island underscores the depth of internal divisions plaguing the army since Rajoelina drove former leader Marc Ravalomanana into exile last year, political commentators said.

The former mayor of Antananarivo rode to power on the back of protests against Ravalomanana’s increasingly autocratic rule. But Rajoelina’s failure to deliver on populist pledges has eroded his popularity.

The backing of General Ndriarijoana and other officers was the key turning point in Rajoelina’s struggle to oust Ravalomanana. But some of those officers who backed Rajoelina’s power grab are now the ones calling for him to quit.

Boka said there was still a chance of a negotiated solution to the crisis, whereby the dissidents could be brought back into the fold, but that would still weaken Rajoelina.

Any hopes Rajoelina had that his power-grab would at least be tolerated by the international community were soon dashed. The United States froze development aid and the African Union slapped sanctions on Rajoelina and 100 of his backers.

Internationally brokered power sharing deals between Rajoelina and three opposition parties headed by former presidents all floundered amid bickering between the bitter rivals over top government posts.

The unrest on Wednesday coincided with a referendum on a new draft constitution that would lower the minimum age for a president to 35, allowing Rajoelina to stay in office until elections slated for May 4, 2011, and to run again.

Recurring political ructions over the past year have pounded the economy of Madagascar, where foreign firms are developing oil, nickel, cobalt and uranium deposits.

Philippe de Pontet, Africa director at political risk consultancy Eurasia, said there was still a risk Ravalomanana and the other former presidents could foment wider unrest.

“If former leaders such as the ousted -- and generally investment-friendly -- President Marc Ravalomanana and his predecessor Didier Ratsiraka, manage to activate a broader uprising, there is a risk of deeper instability in the short term, but we see this risk as about a 25 percent possibility.”